The $5 Trillion Reality Check
The bill for the artificial intelligence revolution is arriving, and it is significantly higher than Wall Street anticipated. As the calendar turns to 2026, the convergence of massive capital expenditure and tightening credit conditions is reshaping the fixed-income landscape. New data reveals that AI data center and project financing deals surged to $125 billion in 2025, a nearly tenfold increase from the $15 billion recorded the previous year. JPMorgan Chase & Co. now estimates the total tab for the AI build-out could reach between $5 trillion and $7 trillion, creating a funding vacuum that public markets struggle to fill alone.
While equity markets have fixated on generative AI applications, the credit market is focused on the physical reality: the steel, concrete, and gigawatts of power required to sustain this growth. For astute borrowers and investors, the narrative has shifted from software speculation to infrastructure execution.
Market Indigestion: The Concentration Problem
The sheer velocity of issuance is testing the structural limits of the public bond market. Major indices and institutional funds often enforce strict issuer caps—typically limiting exposure to any single company to 3%. With tech giants like Meta, Alphabet, and Oracle issuing tens of billions in debt simultaneously to fund GPU clusters and data centers, these concentration limits are being breached. Consequently, even investment-grade “AI growth” issuers are paying premiums to clear the market. In late 2025, robust borrowers like Alphabet and Meta paid premiums of 10 to 15 basis points, while Oracle saw credit default swaps (CDS) spike to their highest levels since 2009.
This crowding-out effect creates a binary market. While liquidity remains available for the largest hyperscalers, the aggressive capital absorption by Big Tech is tightening conditions for borrowers in adjacent sectors, such as telecom and utilities, sparking volatility in broader credit spreads.
The Rise of “Synthetic” Debt
Facing balance sheet bloat, hyperscalers are increasingly turning to financial engineering to mask their leverage. A growing trend of "synthetic leases" allows companies like Microsoft and Meta to secure computing power without technically carrying the associated debt. By utilizing third-party intermediaries to finance data centers, these giants keep liabilities off-ledger, pushing risk into the opaque corners of the market.
While this preserves credit ratings for the tech elite, it introduces complexity for lenders. The Bank of England has already issued warnings regarding the stability risks posed by this opaque debt accumulation. For the broader market, the risk is not just in potential defaults, but in the disconnect between valuations and the tangible asset base supporting them.
The Bond Capital View: Funding the Foundation
The current market environment—characterized by widening spreads and heavy issuance—validates the need for flexible, private capital solutions. JPMorgan estimates a $1.4 trillion funding gap that public markets cannot absorb, positioning private credit to supply over half of the capital needed for the data center build-out through 2028.
At Bond Capital, we view this not as a speculative bubble, but as an infrastructure cycle comparable to the shale boom or the fiber-optic rollout. However, the distinction between asset-backed security and financial engineering is paramount. While public markets struggle with concentration limits and off-balance sheet structures, private credit offers a distinct advantage: the ability to underwrite the physical asset itself. We remain focused on financing the tangible infrastructure—the power generation, the real estate, and the hardware—rather than the hype. In a market crowded with complex derivatives, certainty of execution and asset security remain the ultimate currency.
