Artificial intelligence debt will almost certainly reach bubble levels eventually, given the history of periods of heavy investments in areas like railroads and the internet, warned DoubleLine portfolio manager Robert Cohen at the Bloomberg Global Credit Forum in New York. Cohen, speaking on a panel, put the probability of an AI bubble at 100%, citing the market's overly exuberant conditions where fund managers buy debt assuming companies will grow into meeting their obligations. Despite the warning, current market conditions show more than $370 billion of US AI debt sales have hit markets since the start of last year, with capital expenditure for AI approaching $5 trillion over the next five years, according to Bloomberg Intelligence.
Artificial intelligence infrastructure financing has become the primary focus for Goldman Sachs' leveraged finance division, as reported by Bloomberg. The trillions of dollars required to fund AI data centers and power infrastructure dominated discussions at the firm's 11th annual leveraged finance and credit conference in Dana Point, California. More than 400 investment executives and 85 borrowers including major companies like American Airlines Group Inc. and Caesars Entertainment Inc. attended the conference at the Waldorf Astoria's Monarch Beach resort.
The scale of AI infrastructure financing has reached unprecedented levels, with companies raising more than $20 billion in the US junk-bond market in the last two months alone, according to Bloomberg reports. In one of the market's most striking developments, Apollo Global Management Inc. and Blackstone Inc. are corralling more investors into a $36 billion deal to help AI infrastructure build out by Anthropic PBC. Anthropic PBC separately announced on Monday that it confidentially submitted draft paperwork for a public listing. Morgan Stanley's Anish Shah estimates that more than 10% to 15% of all debt issuance across credit markets could be tied to AI this year — a shocking amount given AI debt barely existed just two years ago.
Current market conditions show most corporate bonds issued for AI facilities trading at near-identical levels, as reported by Bloomberg. However, bankers caution that a sorting mechanism is coming as supply saturates the market. If borrowers miss construction targets for their data centers, their bond pricing will begin to diverge, according to Chris Bonner, Goldman's head of leveraged finance for the Americas. The sheer scale of capital requirements across data centers, power infrastructure, and semiconductor chips is creating opportunities across multiple market segments. Morgan Stanley expects a record $2.25 trillion of US high-grade corporate bond sales this year, up from about $1.81 trillion last year, with hyperscalers alone expected to sell about $250 billion to $300 billion this year.
Despite AI euphoria, Wall Street continues to seek a return to traditional merger and acquisition activity, according to Bloomberg reports. While landmark debt deals including Electronic Arts Inc. takeover and Paramount Skydance Corp.'s planned acquisition of Warner Bros. Discovery Inc. have added to supply, a consistent flow of transactions remains elusive. The hunger for non-AI deals made Caesars Entertainment's announcement of its acquisition by Fertitta Entertainment Inc. a significant talking point, with Goldman Sachs and Morgan Stanley co-leading the $5.7 billion transaction.
Bankers remain optimistic about the broader dealmaking environment despite AI infrastructure dominance, as reported by Bloomberg. The debt markets are certainly constructive, both in terms of size and pricing, according to Miriam Wheeler, Goldman Sachs global head of leveraged finance. Corporate M&A and large buyouts are currently sustaining the market, while mid-sized private equity transactions remain sluggish. Tim Ingrassia, Goldman's Co-Chairman of global M&A, addressed the crowd on dealmaking outlook during the conference, with bankers characteristically optimistic that the tide is turning for traditional M&A activity. However, DoubleLine's Cohen warned that in equities, valuations may be getting more stretched now, defining an equity bubble as prices that reflect unrealistic future growth expectations.
