The surge in AI data center construction is sparking growing concern on Wall Street that massive debt-fueled expansion could be sowing the seeds for the next credit market shock. A recent survey by Bank of America indicates that capital expenditures by AI hyperscale cloud providers have rapidly become one of the most closely watched potential credit risks among global investors.
The survey data reveals that among global fund managers polled in May, approximately 34% of respondents believe AI-related capital spending is most likely to trigger a future systemic credit event. This figure has doubled from 17% in April. While the U.S. private credit market remains the top concern at 42%, this is notably down from 57% last month.
Since the beginning of last year, technology companies have raised over $300 billion through the U.S. bond market to fund AI infrastructure build-out. Investment banks anticipate this fundraising pace will increase significantly in the coming months. The core market anxiety stems from tech firms borrowing at an unprecedented rate to invest in AI, while significant uncertainty remains regarding whether these investments will generate sufficient future returns.
David De Boltz, Managing Director of Leveraged Finance at JPMorgan, commented, "The growth in financing has been exponential." He noted that nearly all available capital in the market is currently flowing toward AI, and investors are continuously assessing how much capital to allocate for these transactions.
The Bank of America survey was conducted from May 8 to 14, involving over 150 global fund managers. Beyond AI capital expenditure, 6% of respondents identified U.S. consumer credit as the area most likely to spark credit risk; 4% expressed concern about the Japanese government bond market; and another 2% viewed cryptocurrencies and stablecoins as potential risk sources.
Regarding broader market tail risks, 40% of respondents ranked "resurgent inflation" as the greatest threat; 20% were concerned about geopolitical conflicts; 18% feared a disorderly surge in bond yields; 11% believed an AI bubble could burst; and another 6% focused on private credit risks.
Despite the market's growing wariness over AI financing risks, De Boltz stated that lender appetite for AI-related projects remains exceptionally strong currently. He pointed out that capital is now flowing more toward companies directly benefiting from AI development, compared to software firms potentially disrupted by the technology. De Boltz stated plainly, "All the money is going to AI right now."
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