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11-18 12:42
Wall Street Bankers Spot a Fat Payday in $1 Trillion AI Hysteria
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Apollo Global Management Inc., Ares Management Corp., Blackstone Inc., HPS Investment Partners, KKR & Co. and Oaktree Capital were all invited, the very same firms who’ve recently emerged as a serious threat to Wall Street banks’ long reign over the lucrative world of corporate finance.</p><p style=\"text-align: start;\">But on the night in question Morgan Stanley was preaching unity, according to people who attended. So massive is the demand for investment dollars to build the scaffolding for the latest digital revolution, it argued, that there’s no need to compete over who gets to do the lending. Bankers and private financiers should instead be ready to combine their forces — and their firepower.</p><p style=\"text-align: start;\">While much of the speculative hype around AI has played out in the stock market so far, as seen in chipmaker Nvidia Corp.’s share price, the giddiness is spreading to the sober suits of debt finance and private equity.</p><p style=\"text-align: start;\">Analysis by Bloomberg News estimates at least $1 trillion of spending is needed for the data centers, electricity supplies and communications networks that will power the attempt to deliver on AI’s promise to transform everything from medicine to customer service. Others reckon the total cost could be double that.</p><p style=\"text-align: start;\">Even Wall Street skeptics on AI’s ultimate money-making potential, such as Goldman Sachs Group Inc.’s head of equity research Jim Covello, have said it’s worth staying invested in those who provide the plumbing. The wealth of Silicon Valley’s and Seattle’s tech giants, who want some of this capacity anyway for cloud storage and the like, offers a degree of comfort.</p><p style=\"text-align: start;\">Banks are racing to keep up with the burst of activity. JPMorgan Chase & Co. has set up a dedicated infrastructure team to corral its troops, according to a person with knowledge of the matter, as has Deutsche Bank AG and others. One rival banker admits his firm is juggling so many data-center deals that it doesn’t have enough staff to cope with the workload.</p><p style=\"text-align: start;\">It’s the same for debt funding. At its dinner, Morgan Stanley said banks don’t have the balance-sheet heft to satisfy the thirst for credit, hence its pitch to partner up with private capital: There’s room at this feast for everyone.</p><p style=\"text-align: start;\">For investment bankers, the opportunity arrives just as many were hunting their next meal ticket. Providing debt financing to companies has long been a crucial Wall Street profit engine, but the business has been through a rough patch of late. While public equity markets have been going gangbusters over the past couple of years, supercharged by AI mania, returns on investment-grade credit have been anemic. Leveraged-finance teams, who fund riskier private equity buyouts, have suffered as M&A dried up.</p><p style=\"text-align: start;\">“The view is very bullish,” says Dominik Thumfart, Deutsche Bank’s head of EMEA infrastructure and energy origination. “This market will remain a major growth area on the financing side for several years to come. The investing curve is very upward looking.” The German lender has worked on $17 billion of data-center financings over three years.</p><p style=\"text-align: start;\">It’s not just the funding of mammoth new data centers coming to the rescue. Two of corporate finance’s dustiest corners have been shaken into life by the tech industry’s hunger for processing power: Utilities and telecommunications are suddenly among the hottest credit markets around.</p><p style=\"text-align: start;\">For private-market behemoths like Apollo and KKR, digital infrastructure is also a chance to turn the page on a tough period when higher interest rates upended the economics of deals struck in the cheap-money era. Firms including Blackstone, Brookfield Infrastructure Partners and Stonepeak Partners have been gobbling up data centers and laying the groundwork to build them, too.</p><p style=\"text-align: start;\">BlackRock Inc.’s boss Larry Fink told Bloomberg TV his firm will raise as much as $120 billion in debt linked to data centers, after teaming up with Microsoft Corp. to bankroll the development of the buildings and energy infrastructure. Bankers and private lenders will be desperate for a slice of such deals.</p><p style=\"text-align: start;\">Nonetheless, even amid the AI delirium there are notes of caution. Some point out that while private equity firms have a solid pedigree in real estate, they haven’t done construction work at the epic scale and expense of some of these data centers — known as “AI factories” in the lingo of Nvidia’s founder and chief executive officer, Jensen Huang. Innovation is constantly upending technology, adding jeopardy to long-term capital projects.</p><p style=\"text-align: start;\">And AI’s acolytes still haven’t dreamed up a “killer app” to match the wildly successful e-commerce and GPS location-based upstarts of the Web 2.0 era. Even if they do, the tech industry’s brightest minds are working to make the software and hardware more efficient, to lessen the need for scale and power.</p><p style=\"text-align: start;\">“There’s a lot of a reason for optimism,” says Barclays Plc’s Benjamin Fernandez, head of the bank’s esoterics ABS business, which works on bonds backed by “non-traditional” assets such as data centers. “But if for whatever reason it doesn’t take hold and people don’t find a way to monetize this investment in AI, that could potentially pose risk.”</p><h3 id=\"id_1413443532\" style=\"text-align: start;\">Hyperactive</h3><p style=\"text-align: start;\">In a nod to the sheer size of their ambitions to manage, process and manipulate ever vaster magnitudes of data — and to the mountains of cash on their books — tech companies including Amazon.Com Inc., Microsoft, Alphabet Inc.’s Google, Meta Platforms and Apple Inc. have become known as “hyperscalers.” Their spending matches the grandiose language.</p><p style=\"text-align: start;\">Hyperscalers lavished $52.9 billion on AI infrastructure in just three months, Craig Scroggie, CEO of Australian data-center group NEXTDC Ltd, said in October.</p><p style=\"text-align: start;\">Further proof of the “unsatiable demand” for computing horsepower, according to real-estate broker Jones Lang LaSalle Inc., is the more than sevenfold increase over two years in construction work on US co-location centers, which lease out rack space to tech firms. Asking rents in those facilities have jumped as much as 37% in 12 months, the firm estimated in an August report.</p><p style=\"text-align: start;\">All of this unbridled spending is revving up the issuance of both investment-grade debt and riskier leveraged loans, especially in the US, handily for private lenders and fee-starved investment bankers alike. Hedge funds are looking as well to profit from AI hysteria with novel types of debt structures.</p><p style=\"text-align: start;\">It’s also opened up a new corner of the asset-backed securities market, where sales of debt backed by data centers have already jumped to a near-record $7.1 billion this year, according to data compiled by Bloomberg News. Chuck in fiber networks and other bits of kit, and it’ll be much higher. Matt Bissonette, who heads Guggenheim Securities’ business in this area, says the number of buyers for his data-center ABS products has roughly doubled in four years.</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/aed0e8e286931ec64f2c8107c5e72520\" tg-width=\"642\" tg-height=\"366\"/></p><p style=\"text-align: start;\">To try to grab as much business as it can, Deutsche Bank’s digital group straddles direct loans, infrastructure finance and securitizations. Much of the early investor action has zeroed in on data centers, where huge chunks of capital are necessary to develop what are effectively gigantic temperature-controlled spaces with continuous electricity supplies. Building a single location with one gigawatt of power — something that’s been much discussed but doesn’t yet exist — will set you back about $12 billion, KKR has estimated.</p><p style=\"text-align: start;\">At its dinner, Morgan Stanley talked too about working with the infrastructure, asset-backed lending and insurance arms of private-capital firms to fund businesses including fiber operators and telecoms tower and satellite owners. The bank and the invitees declined to comment about the evening, except HPS which didn’t respond immediately.</p><p style=\"text-align: start;\">Giving a sense of the possible spending needed, Sam Altman, founder of ChatGPT owner OpenAI, has pitched the idea of five-gigawatt centers. That could require millions of square feet of space and suck up enough energy to power many US cities.</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/73980df061cecd9fb913137c09fa3125\" alt=\"Sam Altman speaking in San Francisco.Photographer: David Paul Morris/Bloomberg\" title=\"Sam Altman speaking in San Francisco.Photographer: David Paul Morris/Bloomberg\" tg-width=\"2000\" tg-height=\"1331\"/><span>Sam Altman speaking in San Francisco.Photographer: David Paul Morris/Bloomberg</span></p><p style=\"text-align: start;\">“It’s one of the most in-demand asset classes for both equity and debt because of the strength of those hyperscalers,” says Nassar Hussain, founder of property investment bank Brookland.</p><p style=\"text-align: start;\">Blackstone has been an enthusiastic data-center acquirer, and is moving into development as well. In September it and the Canada Pension Plan Investment Board agreed to buy AirTrunk in a deal valuing the owner of a network of Asian hyperscaler sites at about A$24 billion ($15.5 billion). Previously it snapped up QTS Realty Trust, which has dozens of US centers, for $10 billion.</p><p style=\"text-align: start;\">It’s also planning to build at a location in northern England that had been earmarked as a battery factory. The cost could hit £10 billion ($13 billion).</p><p style=\"text-align: start;\">While Blackstone hasn’t risked that kind of capital on construction before, developers of data centers can make stellar returns if all goes well. Property researcher Green Street reckons profit margins on London sites are about 65%.</p><p style=\"text-align: start;\">Financiers are eager to back these grand projects because future occupants have usually pre-signed long leases, making them safer bets. Some banks are offering to lend as much as 70% or 80% of the cost and occasionally more when a lease is already signed, according to a person with knowledge of the matter.</p><p style=\"text-align: start;\">“We’re seeing a bunch of new joiners recently in this field,” says Marie Baetz, a senior credit research analyst at Generali Investments. “But I’d say the overall financing and approach has been pretty disciplined.”</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/0c8c2b87fedf014403e0e5a778497534\" alt=\"An AirTrunk data center in Sydney.Photographer: Brent Lewin/Bloomberg\" title=\"An AirTrunk data center in Sydney.Photographer: Brent Lewin/Bloomberg\" tg-width=\"2000\" tg-height=\"1334\"/><span>An AirTrunk data center in Sydney.Photographer: Brent Lewin/Bloomberg</span></p><p style=\"text-align: start;\">Lenders are more twitchy, however, about data centers explicitly earmarked for AI rather than more general purposes, according to a banker who works in the sector. Such deals can carry costlier debt and less leverage, he says, because the technology still has to prove its worth.</p><p style=\"text-align: start;\">Separately, a senior partner at a leading private equity firm says he’s troubled by the emergence of speculative development, meaning construction takes place before a tenant has been found, as it’s hard to be sure of final demand. Some lawyers talk of “zombie projects” that may never be finished.</p><p style=\"text-align: start;\">And not everyone believes that the “if you build it, they will come” approach is a surefire winner for those gambling on an era-changing AI breakthrough. Massachusetts Institute of Technology professor Daron Acemoglu says a lot of capital will be wasted.</p><p style=\"text-align: start;\">Despite the misgivings, the appetite for deals from bankers and private lenders — especially for sites with blue-chip, signed-up occupants — is giving most data-center owners and developers a strong hand when pricing debt. A site leased long term by a tech giant can snag bank funding at a margin below two percentage points, says Brookland’s Hussain. Co-locators typically pay 2.5 percentage points or less, he adds.</p><p style=\"text-align: start;\">“Recently, we raised €850 million ($907 million) in nine-year bonds at below 4% and refinanced and upsized our revolving credit facilities to $4.5 billion,” says Jordan Sadler, senior vice president at Digital Realty Trust Inc., a tech property firm that has signed joint ventures with Blackstone and others for almost $9 billion of hyperscale data-center developments.</p><h3 id=\"id_3575469370\" style=\"text-align: start;\">Power Play</h3><p style=\"text-align: start;\">The main problem for energy-guzzling data centers, and their owners, is securing steady access to overstretched electricity grids — although this too holds out the promise of another payday for lenders. In the race to expand power capacity, they’re ready to back anything from bog-standard utilities investments to direct deals between tech companies and nuclear-plant owners.</p><p style=\"text-align: start;\">There’s an urgent need. Ireland’s power transmission operator EirGrid warned last year of the “big concern that some large data centers decide to exit” the country because it hadn’t been able to sign new connection agreements, according to a presentation obtained by Bloomberg News under the Freedom of Information Act that was first disclosed by transparency group Right to Know.</p><p style=\"text-align: start;\">Across the Atlantic, one utility told the Federal Reserve Bank of Atlanta that electricity usage by data centers rose 17% in recent months. In Virginia, host to the world’s highest concentration of these sites, records for peak power demand were set six times in July, according to Dominion Energy Inc.</p><p style=\"text-align: start;\">Trying to satisfy energy-devouring data centers means the utility sector’s capital spending is set to exceed $200 billion by next year, about double what it was a decade earlier. That would have stressed utility balance sheets, but a recent easing of how Moody’s Ratings views some of the industry’s riskier hybrid bonds — letting them be treated as half equity — has opened the floodgates to companies raising capital without being downgraded.</p><p style=\"text-align: start;\">Sales of these bonds have risen almost eightfold this year to $15 billion, data compiled by Bloomberg shows. Only issues by bulge-bracket banks match that.</p><p style=\"text-align: start;\">“A lot of the demand is to power data centers and the biggest tailwind is AI,” says Sinjin Bowron, a portfolio manager at hedge fund Beach Point Capital Management. “There’s no direct way to play the AI tailwinds in leveraged credit but electric generation is one of them.”</p><p style=\"text-align: start;\">As with data centers this has drawn the attention of buyout heavyweights including Carlyle Group Inc., particularly around credit and equity linked to nuclear power. From reopening mothballed atomic sites like Three Mile Island to installing small modular reactors, tech companies are exploring some radical, and expensive, ideas to source power.</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/8979389453eccb48858e3a24e79fb43b\" alt=\"The Three Mile Island nuclear power plant in Pennsylvania.Photographer: Heather Khalifa/Bloomberg\" title=\"The Three Mile Island nuclear power plant in Pennsylvania.Photographer: Heather Khalifa/Bloomberg\" tg-width=\"2000\" tg-height=\"1334\"/><span>The Three Mile Island nuclear power plant in Pennsylvania.Photographer: Heather Khalifa/Bloomberg</span></p><p style=\"text-align: start;\">Telecoms is another moribund sector to get the AI kiss of life. Dealmaking in the industry has more than trebled from last year, Bloomberg data shows.</p><p style=\"text-align: start;\">Private capital is also getting creative when chasing a piece of the AI pie, conjuring up wheezes like accepting Nvidia chips as collateral for lending.</p><p style=\"text-align: start;\">Still, data centers remain the primary focus. The pressing question for the financiers funding this monumental build-out is how they can be certain of making the same kinds of returns as they did when cashing out of previous property punts such as warehouses. Because AI factories are relatively new, there aren’t many examples of private equity exiting largescale investments.</p><p style=\"text-align: start;\">Firms leading the charge on financing take solace in the riches of Google, Microsoft and their ilk, and argue that this will let them play a long game.</p><p style=\"text-align: start;\">“Those dollars are going to be spent and I think the sponsors of this technology, which are largely the hyperscalers, have very, very, very deep balance sheets,” Rob Bittencourt, a partner at Apollo and co-head of opportunistic credit, told Bloomberg’s Odd Lots podcast recently. “I think that is going to give a durability to the trend and instill a patience, if you will, versus other technology cycles we’ve seen.”</p></body></html>","source":"lsy1584095487587","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Wall Street Bankers Spot a Fat Payday in $1 Trillion AI Hysteria</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; 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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nWall Street Bankers Spot a Fat Payday in $1 Trillion AI Hysteria\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-18 10:53 GMT+8 <a href=https://www.bloomberg.com/news/articles/2024-11-17/ai-s-1-trillion-hysteria-offers-fat-payday-for-wall-street-bankers><strong>Bloomberg</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>At a dinner hosted by some of Morgan Stanley’s top bankers in New York last month, one topic dominated the table talk: the fortunes to be made from the frenzy around artificial intelligence.In the ...</p>\n\n<a href=\"https://www.bloomberg.com/news/articles/2024-11-17/ai-s-1-trillion-hysteria-offers-fat-payday-for-wall-street-bankers\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"AMZN":"亚马逊","NVDA":"英伟达","AAPL":"苹果"},"source_url":"https://www.bloomberg.com/news/articles/2024-11-17/ai-s-1-trillion-hysteria-offers-fat-payday-for-wall-street-bankers","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1196668214","content_text":"At a dinner hosted by some of Morgan Stanley’s top bankers in New York last month, one topic dominated the table talk: the fortunes to be made from the frenzy around artificial intelligence.In the room were many of the marquee names of private capital. Apollo Global Management Inc., Ares Management Corp., Blackstone Inc., HPS Investment Partners, KKR & Co. and Oaktree Capital were all invited, the very same firms who’ve recently emerged as a serious threat to Wall Street banks’ long reign over the lucrative world of corporate finance.But on the night in question Morgan Stanley was preaching unity, according to people who attended. So massive is the demand for investment dollars to build the scaffolding for the latest digital revolution, it argued, that there’s no need to compete over who gets to do the lending. Bankers and private financiers should instead be ready to combine their forces — and their firepower.While much of the speculative hype around AI has played out in the stock market so far, as seen in chipmaker Nvidia Corp.’s share price, the giddiness is spreading to the sober suits of debt finance and private equity.Analysis by Bloomberg News estimates at least $1 trillion of spending is needed for the data centers, electricity supplies and communications networks that will power the attempt to deliver on AI’s promise to transform everything from medicine to customer service. Others reckon the total cost could be double that.Even Wall Street skeptics on AI’s ultimate money-making potential, such as Goldman Sachs Group Inc.’s head of equity research Jim Covello, have said it’s worth staying invested in those who provide the plumbing. The wealth of Silicon Valley’s and Seattle’s tech giants, who want some of this capacity anyway for cloud storage and the like, offers a degree of comfort.Banks are racing to keep up with the burst of activity. JPMorgan Chase & Co. has set up a dedicated infrastructure team to corral its troops, according to a person with knowledge of the matter, as has Deutsche Bank AG and others. One rival banker admits his firm is juggling so many data-center deals that it doesn’t have enough staff to cope with the workload.It’s the same for debt funding. At its dinner, Morgan Stanley said banks don’t have the balance-sheet heft to satisfy the thirst for credit, hence its pitch to partner up with private capital: There’s room at this feast for everyone.For investment bankers, the opportunity arrives just as many were hunting their next meal ticket. Providing debt financing to companies has long been a crucial Wall Street profit engine, but the business has been through a rough patch of late. While public equity markets have been going gangbusters over the past couple of years, supercharged by AI mania, returns on investment-grade credit have been anemic. Leveraged-finance teams, who fund riskier private equity buyouts, have suffered as M&A dried up.“The view is very bullish,” says Dominik Thumfart, Deutsche Bank’s head of EMEA infrastructure and energy origination. “This market will remain a major growth area on the financing side for several years to come. The investing curve is very upward looking.” The German lender has worked on $17 billion of data-center financings over three years.It’s not just the funding of mammoth new data centers coming to the rescue. Two of corporate finance’s dustiest corners have been shaken into life by the tech industry’s hunger for processing power: Utilities and telecommunications are suddenly among the hottest credit markets around.For private-market behemoths like Apollo and KKR, digital infrastructure is also a chance to turn the page on a tough period when higher interest rates upended the economics of deals struck in the cheap-money era. Firms including Blackstone, Brookfield Infrastructure Partners and Stonepeak Partners have been gobbling up data centers and laying the groundwork to build them, too.BlackRock Inc.’s boss Larry Fink told Bloomberg TV his firm will raise as much as $120 billion in debt linked to data centers, after teaming up with Microsoft Corp. to bankroll the development of the buildings and energy infrastructure. Bankers and private lenders will be desperate for a slice of such deals.Nonetheless, even amid the AI delirium there are notes of caution. Some point out that while private equity firms have a solid pedigree in real estate, they haven’t done construction work at the epic scale and expense of some of these data centers — known as “AI factories” in the lingo of Nvidia’s founder and chief executive officer, Jensen Huang. Innovation is constantly upending technology, adding jeopardy to long-term capital projects.And AI’s acolytes still haven’t dreamed up a “killer app” to match the wildly successful e-commerce and GPS location-based upstarts of the Web 2.0 era. Even if they do, the tech industry’s brightest minds are working to make the software and hardware more efficient, to lessen the need for scale and power.“There’s a lot of a reason for optimism,” says Barclays Plc’s Benjamin Fernandez, head of the bank’s esoterics ABS business, which works on bonds backed by “non-traditional” assets such as data centers. “But if for whatever reason it doesn’t take hold and people don’t find a way to monetize this investment in AI, that could potentially pose risk.”HyperactiveIn a nod to the sheer size of their ambitions to manage, process and manipulate ever vaster magnitudes of data — and to the mountains of cash on their books — tech companies including Amazon.Com Inc., Microsoft, Alphabet Inc.’s Google, Meta Platforms and Apple Inc. have become known as “hyperscalers.” Their spending matches the grandiose language.Hyperscalers lavished $52.9 billion on AI infrastructure in just three months, Craig Scroggie, CEO of Australian data-center group NEXTDC Ltd, said in October.Further proof of the “unsatiable demand” for computing horsepower, according to real-estate broker Jones Lang LaSalle Inc., is the more than sevenfold increase over two years in construction work on US co-location centers, which lease out rack space to tech firms. Asking rents in those facilities have jumped as much as 37% in 12 months, the firm estimated in an August report.All of this unbridled spending is revving up the issuance of both investment-grade debt and riskier leveraged loans, especially in the US, handily for private lenders and fee-starved investment bankers alike. Hedge funds are looking as well to profit from AI hysteria with novel types of debt structures.It’s also opened up a new corner of the asset-backed securities market, where sales of debt backed by data centers have already jumped to a near-record $7.1 billion this year, according to data compiled by Bloomberg News. Chuck in fiber networks and other bits of kit, and it’ll be much higher. Matt Bissonette, who heads Guggenheim Securities’ business in this area, says the number of buyers for his data-center ABS products has roughly doubled in four years.To try to grab as much business as it can, Deutsche Bank’s digital group straddles direct loans, infrastructure finance and securitizations. Much of the early investor action has zeroed in on data centers, where huge chunks of capital are necessary to develop what are effectively gigantic temperature-controlled spaces with continuous electricity supplies. Building a single location with one gigawatt of power — something that’s been much discussed but doesn’t yet exist — will set you back about $12 billion, KKR has estimated.At its dinner, Morgan Stanley talked too about working with the infrastructure, asset-backed lending and insurance arms of private-capital firms to fund businesses including fiber operators and telecoms tower and satellite owners. The bank and the invitees declined to comment about the evening, except HPS which didn’t respond immediately.Giving a sense of the possible spending needed, Sam Altman, founder of ChatGPT owner OpenAI, has pitched the idea of five-gigawatt centers. That could require millions of square feet of space and suck up enough energy to power many US cities.Sam Altman speaking in San Francisco.Photographer: David Paul Morris/Bloomberg“It’s one of the most in-demand asset classes for both equity and debt because of the strength of those hyperscalers,” says Nassar Hussain, founder of property investment bank Brookland.Blackstone has been an enthusiastic data-center acquirer, and is moving into development as well. In September it and the Canada Pension Plan Investment Board agreed to buy AirTrunk in a deal valuing the owner of a network of Asian hyperscaler sites at about A$24 billion ($15.5 billion). Previously it snapped up QTS Realty Trust, which has dozens of US centers, for $10 billion.It’s also planning to build at a location in northern England that had been earmarked as a battery factory. The cost could hit £10 billion ($13 billion).While Blackstone hasn’t risked that kind of capital on construction before, developers of data centers can make stellar returns if all goes well. Property researcher Green Street reckons profit margins on London sites are about 65%.Financiers are eager to back these grand projects because future occupants have usually pre-signed long leases, making them safer bets. Some banks are offering to lend as much as 70% or 80% of the cost and occasionally more when a lease is already signed, according to a person with knowledge of the matter.“We’re seeing a bunch of new joiners recently in this field,” says Marie Baetz, a senior credit research analyst at Generali Investments. “But I’d say the overall financing and approach has been pretty disciplined.”An AirTrunk data center in Sydney.Photographer: Brent Lewin/BloombergLenders are more twitchy, however, about data centers explicitly earmarked for AI rather than more general purposes, according to a banker who works in the sector. Such deals can carry costlier debt and less leverage, he says, because the technology still has to prove its worth.Separately, a senior partner at a leading private equity firm says he’s troubled by the emergence of speculative development, meaning construction takes place before a tenant has been found, as it’s hard to be sure of final demand. Some lawyers talk of “zombie projects” that may never be finished.And not everyone believes that the “if you build it, they will come” approach is a surefire winner for those gambling on an era-changing AI breakthrough. Massachusetts Institute of Technology professor Daron Acemoglu says a lot of capital will be wasted.Despite the misgivings, the appetite for deals from bankers and private lenders — especially for sites with blue-chip, signed-up occupants — is giving most data-center owners and developers a strong hand when pricing debt. A site leased long term by a tech giant can snag bank funding at a margin below two percentage points, says Brookland’s Hussain. Co-locators typically pay 2.5 percentage points or less, he adds.“Recently, we raised €850 million ($907 million) in nine-year bonds at below 4% and refinanced and upsized our revolving credit facilities to $4.5 billion,” says Jordan Sadler, senior vice president at Digital Realty Trust Inc., a tech property firm that has signed joint ventures with Blackstone and others for almost $9 billion of hyperscale data-center developments.Power PlayThe main problem for energy-guzzling data centers, and their owners, is securing steady access to overstretched electricity grids — although this too holds out the promise of another payday for lenders. In the race to expand power capacity, they’re ready to back anything from bog-standard utilities investments to direct deals between tech companies and nuclear-plant owners.There’s an urgent need. Ireland’s power transmission operator EirGrid warned last year of the “big concern that some large data centers decide to exit” the country because it hadn’t been able to sign new connection agreements, according to a presentation obtained by Bloomberg News under the Freedom of Information Act that was first disclosed by transparency group Right to Know.Across the Atlantic, one utility told the Federal Reserve Bank of Atlanta that electricity usage by data centers rose 17% in recent months. In Virginia, host to the world’s highest concentration of these sites, records for peak power demand were set six times in July, according to Dominion Energy Inc.Trying to satisfy energy-devouring data centers means the utility sector’s capital spending is set to exceed $200 billion by next year, about double what it was a decade earlier. That would have stressed utility balance sheets, but a recent easing of how Moody’s Ratings views some of the industry’s riskier hybrid bonds — letting them be treated as half equity — has opened the floodgates to companies raising capital without being downgraded.Sales of these bonds have risen almost eightfold this year to $15 billion, data compiled by Bloomberg shows. Only issues by bulge-bracket banks match that.“A lot of the demand is to power data centers and the biggest tailwind is AI,” says Sinjin Bowron, a portfolio manager at hedge fund Beach Point Capital Management. “There’s no direct way to play the AI tailwinds in leveraged credit but electric generation is one of them.”As with data centers this has drawn the attention of buyout heavyweights including Carlyle Group Inc., particularly around credit and equity linked to nuclear power. From reopening mothballed atomic sites like Three Mile Island to installing small modular reactors, tech companies are exploring some radical, and expensive, ideas to source power.The Three Mile Island nuclear power plant in Pennsylvania.Photographer: Heather Khalifa/BloombergTelecoms is another moribund sector to get the AI kiss of life. Dealmaking in the industry has more than trebled from last year, Bloomberg data shows.Private capital is also getting creative when chasing a piece of the AI pie, conjuring up wheezes like accepting Nvidia chips as collateral for lending.Still, data centers remain the primary focus. The pressing question for the financiers funding this monumental build-out is how they can be certain of making the same kinds of returns as they did when cashing out of previous property punts such as warehouses. Because AI factories are relatively new, there aren’t many examples of private equity exiting largescale investments.Firms leading the charge on financing take solace in the riches of Google, Microsoft and their ilk, and argue that this will let them play a long game.“Those dollars are going to be spent and I think the sponsors of this technology, which are largely the hyperscalers, have very, very, very deep balance sheets,” Rob Bittencourt, a partner at Apollo and co-head of opportunistic credit, told Bloomberg’s Odd Lots podcast recently. “I think that is going to give a durability to the trend and instill a patience, if you will, versus other technology cycles we’ve seen.”","news_type":1},"isVote":1,"tweetType":1,"viewCount":49,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0}],"hots":[{"id":372309028622536,"gmtCreate":1731904957096,"gmtModify":1731908143665,"author":{"id":"4172354573392182","authorId":"4172354573392182","name":"Bleinavon","avatar":"https://community-static.tradeup.com/news/default-avatar.jpg","crmLevel":1,"crmLevelSwitch":0,"followedFlag":false,"idStr":"4172354573392182","authorIdStr":"4172354573392182"},"themes":[],"htmlText":" ","listText":" ","text":"","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/372309028622536","repostId":"1196668214","repostType":2,"repost":{"id":"1196668214","pubTimestamp":1731898411,"share":"https://ttm.financial/m/news/1196668214?lang=&edition=fundamental","pubTime":"2024-11-18 10:53","market":"us","language":"en","title":"Wall Street Bankers Spot a Fat Payday in $1 Trillion AI Hysteria","url":"https://stock-news.laohu8.com/highlight/detail?id=1196668214","media":"Bloomberg","summary":"At a dinner hosted by some of Morgan Stanley’s top bankers in New York last month, one topic dominated the table talk: the fortunes to be made from the frenzy around artificial intelligence.In the roo","content":"<html><head></head><body><p>At a dinner hosted by some of Morgan Stanley’s top bankers in New York last month, one topic dominated the table talk: the fortunes to be made from the frenzy around artificial intelligence.</p><p style=\"text-align: start;\">In the room were many of the marquee names of private capital. Apollo Global Management Inc., Ares Management Corp., Blackstone Inc., HPS Investment Partners, KKR & Co. and Oaktree Capital were all invited, the very same firms who’ve recently emerged as a serious threat to Wall Street banks’ long reign over the lucrative world of corporate finance.</p><p style=\"text-align: start;\">But on the night in question Morgan Stanley was preaching unity, according to people who attended. So massive is the demand for investment dollars to build the scaffolding for the latest digital revolution, it argued, that there’s no need to compete over who gets to do the lending. Bankers and private financiers should instead be ready to combine their forces — and their firepower.</p><p style=\"text-align: start;\">While much of the speculative hype around AI has played out in the stock market so far, as seen in chipmaker Nvidia Corp.’s share price, the giddiness is spreading to the sober suits of debt finance and private equity.</p><p style=\"text-align: start;\">Analysis by Bloomberg News estimates at least $1 trillion of spending is needed for the data centers, electricity supplies and communications networks that will power the attempt to deliver on AI’s promise to transform everything from medicine to customer service. Others reckon the total cost could be double that.</p><p style=\"text-align: start;\">Even Wall Street skeptics on AI’s ultimate money-making potential, such as Goldman Sachs Group Inc.’s head of equity research Jim Covello, have said it’s worth staying invested in those who provide the plumbing. The wealth of Silicon Valley’s and Seattle’s tech giants, who want some of this capacity anyway for cloud storage and the like, offers a degree of comfort.</p><p style=\"text-align: start;\">Banks are racing to keep up with the burst of activity. JPMorgan Chase & Co. has set up a dedicated infrastructure team to corral its troops, according to a person with knowledge of the matter, as has Deutsche Bank AG and others. One rival banker admits his firm is juggling so many data-center deals that it doesn’t have enough staff to cope with the workload.</p><p style=\"text-align: start;\">It’s the same for debt funding. At its dinner, Morgan Stanley said banks don’t have the balance-sheet heft to satisfy the thirst for credit, hence its pitch to partner up with private capital: There’s room at this feast for everyone.</p><p style=\"text-align: start;\">For investment bankers, the opportunity arrives just as many were hunting their next meal ticket. Providing debt financing to companies has long been a crucial Wall Street profit engine, but the business has been through a rough patch of late. While public equity markets have been going gangbusters over the past couple of years, supercharged by AI mania, returns on investment-grade credit have been anemic. Leveraged-finance teams, who fund riskier private equity buyouts, have suffered as M&A dried up.</p><p style=\"text-align: start;\">“The view is very bullish,” says Dominik Thumfart, Deutsche Bank’s head of EMEA infrastructure and energy origination. “This market will remain a major growth area on the financing side for several years to come. The investing curve is very upward looking.” The German lender has worked on $17 billion of data-center financings over three years.</p><p style=\"text-align: start;\">It’s not just the funding of mammoth new data centers coming to the rescue. Two of corporate finance’s dustiest corners have been shaken into life by the tech industry’s hunger for processing power: Utilities and telecommunications are suddenly among the hottest credit markets around.</p><p style=\"text-align: start;\">For private-market behemoths like Apollo and KKR, digital infrastructure is also a chance to turn the page on a tough period when higher interest rates upended the economics of deals struck in the cheap-money era. Firms including Blackstone, Brookfield Infrastructure Partners and Stonepeak Partners have been gobbling up data centers and laying the groundwork to build them, too.</p><p style=\"text-align: start;\">BlackRock Inc.’s boss Larry Fink told Bloomberg TV his firm will raise as much as $120 billion in debt linked to data centers, after teaming up with Microsoft Corp. to bankroll the development of the buildings and energy infrastructure. Bankers and private lenders will be desperate for a slice of such deals.</p><p style=\"text-align: start;\">Nonetheless, even amid the AI delirium there are notes of caution. Some point out that while private equity firms have a solid pedigree in real estate, they haven’t done construction work at the epic scale and expense of some of these data centers — known as “AI factories” in the lingo of Nvidia’s founder and chief executive officer, Jensen Huang. Innovation is constantly upending technology, adding jeopardy to long-term capital projects.</p><p style=\"text-align: start;\">And AI’s acolytes still haven’t dreamed up a “killer app” to match the wildly successful e-commerce and GPS location-based upstarts of the Web 2.0 era. Even if they do, the tech industry’s brightest minds are working to make the software and hardware more efficient, to lessen the need for scale and power.</p><p style=\"text-align: start;\">“There’s a lot of a reason for optimism,” says Barclays Plc’s Benjamin Fernandez, head of the bank’s esoterics ABS business, which works on bonds backed by “non-traditional” assets such as data centers. “But if for whatever reason it doesn’t take hold and people don’t find a way to monetize this investment in AI, that could potentially pose risk.”</p><h3 id=\"id_1413443532\" style=\"text-align: start;\">Hyperactive</h3><p style=\"text-align: start;\">In a nod to the sheer size of their ambitions to manage, process and manipulate ever vaster magnitudes of data — and to the mountains of cash on their books — tech companies including Amazon.Com Inc., Microsoft, Alphabet Inc.’s Google, Meta Platforms and Apple Inc. have become known as “hyperscalers.” Their spending matches the grandiose language.</p><p style=\"text-align: start;\">Hyperscalers lavished $52.9 billion on AI infrastructure in just three months, Craig Scroggie, CEO of Australian data-center group NEXTDC Ltd, said in October.</p><p style=\"text-align: start;\">Further proof of the “unsatiable demand” for computing horsepower, according to real-estate broker Jones Lang LaSalle Inc., is the more than sevenfold increase over two years in construction work on US co-location centers, which lease out rack space to tech firms. Asking rents in those facilities have jumped as much as 37% in 12 months, the firm estimated in an August report.</p><p style=\"text-align: start;\">All of this unbridled spending is revving up the issuance of both investment-grade debt and riskier leveraged loans, especially in the US, handily for private lenders and fee-starved investment bankers alike. Hedge funds are looking as well to profit from AI hysteria with novel types of debt structures.</p><p style=\"text-align: start;\">It’s also opened up a new corner of the asset-backed securities market, where sales of debt backed by data centers have already jumped to a near-record $7.1 billion this year, according to data compiled by Bloomberg News. Chuck in fiber networks and other bits of kit, and it’ll be much higher. Matt Bissonette, who heads Guggenheim Securities’ business in this area, says the number of buyers for his data-center ABS products has roughly doubled in four years.</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/aed0e8e286931ec64f2c8107c5e72520\" tg-width=\"642\" tg-height=\"366\"/></p><p style=\"text-align: start;\">To try to grab as much business as it can, Deutsche Bank’s digital group straddles direct loans, infrastructure finance and securitizations. Much of the early investor action has zeroed in on data centers, where huge chunks of capital are necessary to develop what are effectively gigantic temperature-controlled spaces with continuous electricity supplies. Building a single location with one gigawatt of power — something that’s been much discussed but doesn’t yet exist — will set you back about $12 billion, KKR has estimated.</p><p style=\"text-align: start;\">At its dinner, Morgan Stanley talked too about working with the infrastructure, asset-backed lending and insurance arms of private-capital firms to fund businesses including fiber operators and telecoms tower and satellite owners. The bank and the invitees declined to comment about the evening, except HPS which didn’t respond immediately.</p><p style=\"text-align: start;\">Giving a sense of the possible spending needed, Sam Altman, founder of ChatGPT owner OpenAI, has pitched the idea of five-gigawatt centers. That could require millions of square feet of space and suck up enough energy to power many US cities.</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/73980df061cecd9fb913137c09fa3125\" alt=\"Sam Altman speaking in San Francisco.Photographer: David Paul Morris/Bloomberg\" title=\"Sam Altman speaking in San Francisco.Photographer: David Paul Morris/Bloomberg\" tg-width=\"2000\" tg-height=\"1331\"/><span>Sam Altman speaking in San Francisco.Photographer: David Paul Morris/Bloomberg</span></p><p style=\"text-align: start;\">“It’s one of the most in-demand asset classes for both equity and debt because of the strength of those hyperscalers,” says Nassar Hussain, founder of property investment bank Brookland.</p><p style=\"text-align: start;\">Blackstone has been an enthusiastic data-center acquirer, and is moving into development as well. In September it and the Canada Pension Plan Investment Board agreed to buy AirTrunk in a deal valuing the owner of a network of Asian hyperscaler sites at about A$24 billion ($15.5 billion). Previously it snapped up QTS Realty Trust, which has dozens of US centers, for $10 billion.</p><p style=\"text-align: start;\">It’s also planning to build at a location in northern England that had been earmarked as a battery factory. The cost could hit £10 billion ($13 billion).</p><p style=\"text-align: start;\">While Blackstone hasn’t risked that kind of capital on construction before, developers of data centers can make stellar returns if all goes well. Property researcher Green Street reckons profit margins on London sites are about 65%.</p><p style=\"text-align: start;\">Financiers are eager to back these grand projects because future occupants have usually pre-signed long leases, making them safer bets. Some banks are offering to lend as much as 70% or 80% of the cost and occasionally more when a lease is already signed, according to a person with knowledge of the matter.</p><p style=\"text-align: start;\">“We’re seeing a bunch of new joiners recently in this field,” says Marie Baetz, a senior credit research analyst at Generali Investments. “But I’d say the overall financing and approach has been pretty disciplined.”</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/0c8c2b87fedf014403e0e5a778497534\" alt=\"An AirTrunk data center in Sydney.Photographer: Brent Lewin/Bloomberg\" title=\"An AirTrunk data center in Sydney.Photographer: Brent Lewin/Bloomberg\" tg-width=\"2000\" tg-height=\"1334\"/><span>An AirTrunk data center in Sydney.Photographer: Brent Lewin/Bloomberg</span></p><p style=\"text-align: start;\">Lenders are more twitchy, however, about data centers explicitly earmarked for AI rather than more general purposes, according to a banker who works in the sector. Such deals can carry costlier debt and less leverage, he says, because the technology still has to prove its worth.</p><p style=\"text-align: start;\">Separately, a senior partner at a leading private equity firm says he’s troubled by the emergence of speculative development, meaning construction takes place before a tenant has been found, as it’s hard to be sure of final demand. Some lawyers talk of “zombie projects” that may never be finished.</p><p style=\"text-align: start;\">And not everyone believes that the “if you build it, they will come” approach is a surefire winner for those gambling on an era-changing AI breakthrough. Massachusetts Institute of Technology professor Daron Acemoglu says a lot of capital will be wasted.</p><p style=\"text-align: start;\">Despite the misgivings, the appetite for deals from bankers and private lenders — especially for sites with blue-chip, signed-up occupants — is giving most data-center owners and developers a strong hand when pricing debt. A site leased long term by a tech giant can snag bank funding at a margin below two percentage points, says Brookland’s Hussain. Co-locators typically pay 2.5 percentage points or less, he adds.</p><p style=\"text-align: start;\">“Recently, we raised €850 million ($907 million) in nine-year bonds at below 4% and refinanced and upsized our revolving credit facilities to $4.5 billion,” says Jordan Sadler, senior vice president at Digital Realty Trust Inc., a tech property firm that has signed joint ventures with Blackstone and others for almost $9 billion of hyperscale data-center developments.</p><h3 id=\"id_3575469370\" style=\"text-align: start;\">Power Play</h3><p style=\"text-align: start;\">The main problem for energy-guzzling data centers, and their owners, is securing steady access to overstretched electricity grids — although this too holds out the promise of another payday for lenders. In the race to expand power capacity, they’re ready to back anything from bog-standard utilities investments to direct deals between tech companies and nuclear-plant owners.</p><p style=\"text-align: start;\">There’s an urgent need. Ireland’s power transmission operator EirGrid warned last year of the “big concern that some large data centers decide to exit” the country because it hadn’t been able to sign new connection agreements, according to a presentation obtained by Bloomberg News under the Freedom of Information Act that was first disclosed by transparency group Right to Know.</p><p style=\"text-align: start;\">Across the Atlantic, one utility told the Federal Reserve Bank of Atlanta that electricity usage by data centers rose 17% in recent months. In Virginia, host to the world’s highest concentration of these sites, records for peak power demand were set six times in July, according to Dominion Energy Inc.</p><p style=\"text-align: start;\">Trying to satisfy energy-devouring data centers means the utility sector’s capital spending is set to exceed $200 billion by next year, about double what it was a decade earlier. That would have stressed utility balance sheets, but a recent easing of how Moody’s Ratings views some of the industry’s riskier hybrid bonds — letting them be treated as half equity — has opened the floodgates to companies raising capital without being downgraded.</p><p style=\"text-align: start;\">Sales of these bonds have risen almost eightfold this year to $15 billion, data compiled by Bloomberg shows. Only issues by bulge-bracket banks match that.</p><p style=\"text-align: start;\">“A lot of the demand is to power data centers and the biggest tailwind is AI,” says Sinjin Bowron, a portfolio manager at hedge fund Beach Point Capital Management. “There’s no direct way to play the AI tailwinds in leveraged credit but electric generation is one of them.”</p><p style=\"text-align: start;\">As with data centers this has drawn the attention of buyout heavyweights including Carlyle Group Inc., particularly around credit and equity linked to nuclear power. From reopening mothballed atomic sites like Three Mile Island to installing small modular reactors, tech companies are exploring some radical, and expensive, ideas to source power.</p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/8979389453eccb48858e3a24e79fb43b\" alt=\"The Three Mile Island nuclear power plant in Pennsylvania.Photographer: Heather Khalifa/Bloomberg\" title=\"The Three Mile Island nuclear power plant in Pennsylvania.Photographer: Heather Khalifa/Bloomberg\" tg-width=\"2000\" tg-height=\"1334\"/><span>The Three Mile Island nuclear power plant in Pennsylvania.Photographer: Heather Khalifa/Bloomberg</span></p><p style=\"text-align: start;\">Telecoms is another moribund sector to get the AI kiss of life. Dealmaking in the industry has more than trebled from last year, Bloomberg data shows.</p><p style=\"text-align: start;\">Private capital is also getting creative when chasing a piece of the AI pie, conjuring up wheezes like accepting Nvidia chips as collateral for lending.</p><p style=\"text-align: start;\">Still, data centers remain the primary focus. The pressing question for the financiers funding this monumental build-out is how they can be certain of making the same kinds of returns as they did when cashing out of previous property punts such as warehouses. Because AI factories are relatively new, there aren’t many examples of private equity exiting largescale investments.</p><p style=\"text-align: start;\">Firms leading the charge on financing take solace in the riches of Google, Microsoft and their ilk, and argue that this will let them play a long game.</p><p style=\"text-align: start;\">“Those dollars are going to be spent and I think the sponsors of this technology, which are largely the hyperscalers, have very, very, very deep balance sheets,” Rob Bittencourt, a partner at Apollo and co-head of opportunistic credit, told Bloomberg’s Odd Lots podcast recently. “I think that is going to give a durability to the trend and instill a patience, if you will, versus other technology cycles we’ve seen.”</p></body></html>","source":"lsy1584095487587","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Wall Street Bankers Spot a Fat Payday in $1 Trillion AI Hysteria</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; 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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nWall Street Bankers Spot a Fat Payday in $1 Trillion AI Hysteria\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-18 10:53 GMT+8 <a href=https://www.bloomberg.com/news/articles/2024-11-17/ai-s-1-trillion-hysteria-offers-fat-payday-for-wall-street-bankers><strong>Bloomberg</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>At a dinner hosted by some of Morgan Stanley’s top bankers in New York last month, one topic dominated the table talk: the fortunes to be made from the frenzy around artificial intelligence.In the ...</p>\n\n<a href=\"https://www.bloomberg.com/news/articles/2024-11-17/ai-s-1-trillion-hysteria-offers-fat-payday-for-wall-street-bankers\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"AMZN":"亚马逊","NVDA":"英伟达","AAPL":"苹果"},"source_url":"https://www.bloomberg.com/news/articles/2024-11-17/ai-s-1-trillion-hysteria-offers-fat-payday-for-wall-street-bankers","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1196668214","content_text":"At a dinner hosted by some of Morgan Stanley’s top bankers in New York last month, one topic dominated the table talk: the fortunes to be made from the frenzy around artificial intelligence.In the room were many of the marquee names of private capital. Apollo Global Management Inc., Ares Management Corp., Blackstone Inc., HPS Investment Partners, KKR & Co. and Oaktree Capital were all invited, the very same firms who’ve recently emerged as a serious threat to Wall Street banks’ long reign over the lucrative world of corporate finance.But on the night in question Morgan Stanley was preaching unity, according to people who attended. So massive is the demand for investment dollars to build the scaffolding for the latest digital revolution, it argued, that there’s no need to compete over who gets to do the lending. Bankers and private financiers should instead be ready to combine their forces — and their firepower.While much of the speculative hype around AI has played out in the stock market so far, as seen in chipmaker Nvidia Corp.’s share price, the giddiness is spreading to the sober suits of debt finance and private equity.Analysis by Bloomberg News estimates at least $1 trillion of spending is needed for the data centers, electricity supplies and communications networks that will power the attempt to deliver on AI’s promise to transform everything from medicine to customer service. Others reckon the total cost could be double that.Even Wall Street skeptics on AI’s ultimate money-making potential, such as Goldman Sachs Group Inc.’s head of equity research Jim Covello, have said it’s worth staying invested in those who provide the plumbing. The wealth of Silicon Valley’s and Seattle’s tech giants, who want some of this capacity anyway for cloud storage and the like, offers a degree of comfort.Banks are racing to keep up with the burst of activity. JPMorgan Chase & Co. has set up a dedicated infrastructure team to corral its troops, according to a person with knowledge of the matter, as has Deutsche Bank AG and others. One rival banker admits his firm is juggling so many data-center deals that it doesn’t have enough staff to cope with the workload.It’s the same for debt funding. At its dinner, Morgan Stanley said banks don’t have the balance-sheet heft to satisfy the thirst for credit, hence its pitch to partner up with private capital: There’s room at this feast for everyone.For investment bankers, the opportunity arrives just as many were hunting their next meal ticket. Providing debt financing to companies has long been a crucial Wall Street profit engine, but the business has been through a rough patch of late. While public equity markets have been going gangbusters over the past couple of years, supercharged by AI mania, returns on investment-grade credit have been anemic. Leveraged-finance teams, who fund riskier private equity buyouts, have suffered as M&A dried up.“The view is very bullish,” says Dominik Thumfart, Deutsche Bank’s head of EMEA infrastructure and energy origination. “This market will remain a major growth area on the financing side for several years to come. The investing curve is very upward looking.” The German lender has worked on $17 billion of data-center financings over three years.It’s not just the funding of mammoth new data centers coming to the rescue. Two of corporate finance’s dustiest corners have been shaken into life by the tech industry’s hunger for processing power: Utilities and telecommunications are suddenly among the hottest credit markets around.For private-market behemoths like Apollo and KKR, digital infrastructure is also a chance to turn the page on a tough period when higher interest rates upended the economics of deals struck in the cheap-money era. Firms including Blackstone, Brookfield Infrastructure Partners and Stonepeak Partners have been gobbling up data centers and laying the groundwork to build them, too.BlackRock Inc.’s boss Larry Fink told Bloomberg TV his firm will raise as much as $120 billion in debt linked to data centers, after teaming up with Microsoft Corp. to bankroll the development of the buildings and energy infrastructure. Bankers and private lenders will be desperate for a slice of such deals.Nonetheless, even amid the AI delirium there are notes of caution. Some point out that while private equity firms have a solid pedigree in real estate, they haven’t done construction work at the epic scale and expense of some of these data centers — known as “AI factories” in the lingo of Nvidia’s founder and chief executive officer, Jensen Huang. Innovation is constantly upending technology, adding jeopardy to long-term capital projects.And AI’s acolytes still haven’t dreamed up a “killer app” to match the wildly successful e-commerce and GPS location-based upstarts of the Web 2.0 era. Even if they do, the tech industry’s brightest minds are working to make the software and hardware more efficient, to lessen the need for scale and power.“There’s a lot of a reason for optimism,” says Barclays Plc’s Benjamin Fernandez, head of the bank’s esoterics ABS business, which works on bonds backed by “non-traditional” assets such as data centers. “But if for whatever reason it doesn’t take hold and people don’t find a way to monetize this investment in AI, that could potentially pose risk.”HyperactiveIn a nod to the sheer size of their ambitions to manage, process and manipulate ever vaster magnitudes of data — and to the mountains of cash on their books — tech companies including Amazon.Com Inc., Microsoft, Alphabet Inc.’s Google, Meta Platforms and Apple Inc. have become known as “hyperscalers.” Their spending matches the grandiose language.Hyperscalers lavished $52.9 billion on AI infrastructure in just three months, Craig Scroggie, CEO of Australian data-center group NEXTDC Ltd, said in October.Further proof of the “unsatiable demand” for computing horsepower, according to real-estate broker Jones Lang LaSalle Inc., is the more than sevenfold increase over two years in construction work on US co-location centers, which lease out rack space to tech firms. Asking rents in those facilities have jumped as much as 37% in 12 months, the firm estimated in an August report.All of this unbridled spending is revving up the issuance of both investment-grade debt and riskier leveraged loans, especially in the US, handily for private lenders and fee-starved investment bankers alike. Hedge funds are looking as well to profit from AI hysteria with novel types of debt structures.It’s also opened up a new corner of the asset-backed securities market, where sales of debt backed by data centers have already jumped to a near-record $7.1 billion this year, according to data compiled by Bloomberg News. Chuck in fiber networks and other bits of kit, and it’ll be much higher. Matt Bissonette, who heads Guggenheim Securities’ business in this area, says the number of buyers for his data-center ABS products has roughly doubled in four years.To try to grab as much business as it can, Deutsche Bank’s digital group straddles direct loans, infrastructure finance and securitizations. Much of the early investor action has zeroed in on data centers, where huge chunks of capital are necessary to develop what are effectively gigantic temperature-controlled spaces with continuous electricity supplies. Building a single location with one gigawatt of power — something that’s been much discussed but doesn’t yet exist — will set you back about $12 billion, KKR has estimated.At its dinner, Morgan Stanley talked too about working with the infrastructure, asset-backed lending and insurance arms of private-capital firms to fund businesses including fiber operators and telecoms tower and satellite owners. The bank and the invitees declined to comment about the evening, except HPS which didn’t respond immediately.Giving a sense of the possible spending needed, Sam Altman, founder of ChatGPT owner OpenAI, has pitched the idea of five-gigawatt centers. That could require millions of square feet of space and suck up enough energy to power many US cities.Sam Altman speaking in San Francisco.Photographer: David Paul Morris/Bloomberg“It’s one of the most in-demand asset classes for both equity and debt because of the strength of those hyperscalers,” says Nassar Hussain, founder of property investment bank Brookland.Blackstone has been an enthusiastic data-center acquirer, and is moving into development as well. In September it and the Canada Pension Plan Investment Board agreed to buy AirTrunk in a deal valuing the owner of a network of Asian hyperscaler sites at about A$24 billion ($15.5 billion). Previously it snapped up QTS Realty Trust, which has dozens of US centers, for $10 billion.It’s also planning to build at a location in northern England that had been earmarked as a battery factory. The cost could hit £10 billion ($13 billion).While Blackstone hasn’t risked that kind of capital on construction before, developers of data centers can make stellar returns if all goes well. Property researcher Green Street reckons profit margins on London sites are about 65%.Financiers are eager to back these grand projects because future occupants have usually pre-signed long leases, making them safer bets. Some banks are offering to lend as much as 70% or 80% of the cost and occasionally more when a lease is already signed, according to a person with knowledge of the matter.“We’re seeing a bunch of new joiners recently in this field,” says Marie Baetz, a senior credit research analyst at Generali Investments. “But I’d say the overall financing and approach has been pretty disciplined.”An AirTrunk data center in Sydney.Photographer: Brent Lewin/BloombergLenders are more twitchy, however, about data centers explicitly earmarked for AI rather than more general purposes, according to a banker who works in the sector. Such deals can carry costlier debt and less leverage, he says, because the technology still has to prove its worth.Separately, a senior partner at a leading private equity firm says he’s troubled by the emergence of speculative development, meaning construction takes place before a tenant has been found, as it’s hard to be sure of final demand. Some lawyers talk of “zombie projects” that may never be finished.And not everyone believes that the “if you build it, they will come” approach is a surefire winner for those gambling on an era-changing AI breakthrough. Massachusetts Institute of Technology professor Daron Acemoglu says a lot of capital will be wasted.Despite the misgivings, the appetite for deals from bankers and private lenders — especially for sites with blue-chip, signed-up occupants — is giving most data-center owners and developers a strong hand when pricing debt. A site leased long term by a tech giant can snag bank funding at a margin below two percentage points, says Brookland’s Hussain. Co-locators typically pay 2.5 percentage points or less, he adds.“Recently, we raised €850 million ($907 million) in nine-year bonds at below 4% and refinanced and upsized our revolving credit facilities to $4.5 billion,” says Jordan Sadler, senior vice president at Digital Realty Trust Inc., a tech property firm that has signed joint ventures with Blackstone and others for almost $9 billion of hyperscale data-center developments.Power PlayThe main problem for energy-guzzling data centers, and their owners, is securing steady access to overstretched electricity grids — although this too holds out the promise of another payday for lenders. In the race to expand power capacity, they’re ready to back anything from bog-standard utilities investments to direct deals between tech companies and nuclear-plant owners.There’s an urgent need. Ireland’s power transmission operator EirGrid warned last year of the “big concern that some large data centers decide to exit” the country because it hadn’t been able to sign new connection agreements, according to a presentation obtained by Bloomberg News under the Freedom of Information Act that was first disclosed by transparency group Right to Know.Across the Atlantic, one utility told the Federal Reserve Bank of Atlanta that electricity usage by data centers rose 17% in recent months. In Virginia, host to the world’s highest concentration of these sites, records for peak power demand were set six times in July, according to Dominion Energy Inc.Trying to satisfy energy-devouring data centers means the utility sector’s capital spending is set to exceed $200 billion by next year, about double what it was a decade earlier. That would have stressed utility balance sheets, but a recent easing of how Moody’s Ratings views some of the industry’s riskier hybrid bonds — letting them be treated as half equity — has opened the floodgates to companies raising capital without being downgraded.Sales of these bonds have risen almost eightfold this year to $15 billion, data compiled by Bloomberg shows. Only issues by bulge-bracket banks match that.“A lot of the demand is to power data centers and the biggest tailwind is AI,” says Sinjin Bowron, a portfolio manager at hedge fund Beach Point Capital Management. “There’s no direct way to play the AI tailwinds in leveraged credit but electric generation is one of them.”As with data centers this has drawn the attention of buyout heavyweights including Carlyle Group Inc., particularly around credit and equity linked to nuclear power. From reopening mothballed atomic sites like Three Mile Island to installing small modular reactors, tech companies are exploring some radical, and expensive, ideas to source power.The Three Mile Island nuclear power plant in Pennsylvania.Photographer: Heather Khalifa/BloombergTelecoms is another moribund sector to get the AI kiss of life. Dealmaking in the industry has more than trebled from last year, Bloomberg data shows.Private capital is also getting creative when chasing a piece of the AI pie, conjuring up wheezes like accepting Nvidia chips as collateral for lending.Still, data centers remain the primary focus. The pressing question for the financiers funding this monumental build-out is how they can be certain of making the same kinds of returns as they did when cashing out of previous property punts such as warehouses. Because AI factories are relatively new, there aren’t many examples of private equity exiting largescale investments.Firms leading the charge on financing take solace in the riches of Google, Microsoft and their ilk, and argue that this will let them play a long game.“Those dollars are going to be spent and I think the sponsors of this technology, which are largely the hyperscalers, have very, very, very deep balance sheets,” Rob Bittencourt, a partner at Apollo and co-head of opportunistic credit, told Bloomberg’s Odd Lots podcast recently. “I think that is going to give a durability to the trend and instill a patience, if you will, versus other technology cycles we’ve seen.”","news_type":1},"isVote":1,"tweetType":1,"viewCount":49,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0}],"lives":[]}
