Banks, investors grow wary of AI debt, spooked by market selloff

Banks and credit investors are upping their scrutiny of AI-related debt deals and showing reluctance to increase exposure to borrowers, jolted by a recent market selloff and changing sentiment toward the technology's growth trajectory, according to Reuters. Some banks that were lining up to fund AI deals just weeks ago are now telling market participants they would be reluctant to finance additional deals even when they involve guarantees from marquee technology companies such as Anthropic and Google, several banking and credit sources said. The lending pullback has been exacerbated by a drop in the stock market that erased $2.5 trillion in market value on Thursday from the Nasdaq 100 and sent the index into a correction, while U.S. midterm election results are adding anxiety about more oversight of data centers.

The change has come in just the past few days, two sources said. "Over the past year there was unbridled enthusiasm to provide debt to neoclouds, anyone who was building data centers or some sort of AI asset," said Chris Poggi, finance partner at Ropes & Gray. "Debt investors' books have become full and now they are assessing if they have extended themselves as much as they're going to extend themselves this year." Even so, Goldman Sachs Research projects global hyperscaler debt issuance will reach $420 billion in 2027, more than 60% above its estimate of $250 billion for fiscal 2026. Investors and lenders are stress-testing cash flows for economic downturns and scrutinizing contractual details including service obligations, operational deadlines and conditions under which large technology customers could reduce or terminate commitments.

At JPMorgan Chase, loans backed by other income-producing properties, which includes data centers, were at $29 billion outstanding at the end of the third quarter, the bank's second-largest commercial real estate exposure at 12% following apartment buildings, up from 8% three years ago when the category ranked fourth. The spread on 10-year hyperscaler debt has widened by about 50 basis points year to date versus roughly 20 basis points for high-quality industrial companies not tied to AI, according to Bank of America credit analyst Yuri Seliger. Bond prices of Meta and SpaceX are trading below par. In Asia, OCBC Group CEO Tan Teck Long said during an earnings briefing: "The kind of deals we look at, we are very focused on the risk aspect. So we structure the deals around to make sure that the cash flow is there."

The pullback has been particularly pronounced among riskier AI borrowers such as neocloud companies and standalone data center operators. Oracle and CoreWeave are among the neocloud companies that could be impacted by possible construction delays or moratoriums, according to Baird Equity Research. CoreWeave's stock has fallen 35% year to date and its bond prices have dropped sharply on the secondary market. CoreWeave sold unsecured notes with a 9.75% coupon in April and a 9.625% coupon in June; by November 6 those 2032 notes yielded more than 16%, TIKR.com reported. Steve Eisman rounded that to a move from 9% to 15% and said: "you ain't building no data center with 15% debt." CoreWeave guided third-quarter interest to $860-940 million against adjusted operating income of $200-260 million, and analysts expect 2027 interest of $5.3 billion to exceed EBIT of $4.1 billion. Some planned bond offerings linked to data centers and chips are being shelved; Nebius had been exploring a high-yield bond issue in September but decided not to go ahead last month. "Most banks and credit investors will take a wait and see approach," said Jay Bala, co-founder and CEO of AIP, referring to how AI growth will fare following the Democratic sweep of Congress in the midterms.