JPMorgan Chase has increased its estimates for the spending and borrowing required by major technology companies to build artificial intelligence (AI) infrastructure.
The bank's strategists noted in a research report on Tuesday that they expect AI hyperscale data center operators to invest approximately $5.5 trillion by 2030, an increase of $400 billion from their November forecast. They wrote that about $4.1 trillion of this will come from debt financing, reflecting market expectations that these companies will use borrowed funds to cover a larger proportion of their expenditures.
The investment race surrounding AI infrastructure has significantly fueled corporate bond issuance. JPMorgan Chase strategists, including Tarek Hamid, pointed out that since the bank's November forecast, bond issuance related to AI and data centers has surpassed $300 billion. They stated that data center bond issuance has been the primary driver of bond sales approaching historical highs earlier this year.
Chipmaking giant Nvidia also joined the wave of large-scale tech company debt issuance on Monday, selling $25 billion in high-grade bonds. The offering attracted a staggering $85 billion in orders as investors sought to participate in the AI boom.
The JPMorgan Chase strategists forecast that over the next five years, the high-grade bond market will lead the wave of AI financing, expected to provide $2.1 trillion in funding for data centers. They added that the leveraged finance market will supply an additional $350 billion.
"The corporate credit market has been dominant thus far, but we expect issuers to utilize every capital market to support their growth needs," the strategists wrote.
They noted that of the remaining funding needs, $1 trillion will come from internal cash flow, $400 billion from incremental equity capital, and $300 billion from the structured products market, leaving a requirement for $1.4 trillion in alternative capital.
The report highlighted that hyperscale data center operators continue to maintain "impressive profitability." The strategists project that by 2027, these companies will generate over $900 billion in cash flow. While currently relying on leveraged financing, they could shift to using operating cash flow or other markets in the future when interest rates are less attractive.
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