Neeraj Seth, Founder and CIO of 3R Investment Management, believes the rapid build-up in AI-related debt represents a monitoring concern rather than a major credit risk. According to reports from CNBC TV18, Seth characterizes the AI credit cycle as still in its middle phase, with debt being raised across public and private markets, both on and off-balance sheets. The hyperscalers' strong financial positions continue to support this debt accumulation, with hyperscalers now representing nearly 15% of the US investment-grade market after previously being almost non-existent.
Seth expects market volatility to remain elevated through the rest of the year amid ongoing geopolitical tensions and higher oil prices. As reported by CNBC TV18, he does not anticipate a worst-case market scenario unfolding, though he acknowledges increased assessment of AI risk. The markets are showing soul-searching on whether AI capex is getting ahead of itself, with semiconductors experiencing more action than the Magnificent Seven hyperscalers. Seth believes there will be more prudence in AI capex going forward without indicating the end of the current cycle.
Regarding Federal Reserve policy, Seth maintains that the Fed is likely to stay on hold until the end of the year while assessing incoming economic data. According to CNBC TV18, he notes that the Treasury market is pricing in two rate hikes, though he questions whether the Fed needs to implement two rate increases between now and the next three quarters. This contrasts with Jamie Dimon's more cautious stance, as reported by CNBC TV18, where the JPMorgan CEO expressed concerns about markets underestimating geopolitical risk.
The AI debt build-up has reached significant levels, with more than $1 trillion of issuance in the US investment-grade market already completed. As reported by CNBC TV18, this debt formation spans both on and off-balance sheet funding mechanisms across public and private markets. Notable participants include SpaceX entering the borrowing market, while the AI-related capex is being funded through a combination of public and private markets. Seth emphasizes that debt levels are going up but maintains this growth is manageable given the underlying hyperscalers' financial strength.
