The Capex Supercycle
The artificial intelligence boom has transitioned from software speculation to a massive industrial construction phase. New data indicates the sector faces a $5 trillion infrastructure bill to meet computing demands, a burden that equity markets alone cannot bear. According to investmentnews.com, strategists at JPMorgan estimate that investment-grade bond markets will need to absorb $1.5 trillion in new issuance over the next five years to fund this expansion, with private credit agencies expected to plug a $1.4 trillion funding gap.
Structural Shifts and Hidden Risks
The sheer velocity of this capital deployment is altering market structures. Major technology firms are increasingly utilizing “synthetic leases” and off-balance-sheet financing to ringfence risk. As reported by nytimes.com, heavyweights like Microsoft and Meta are securing billions in financing for data centers without directly taking on the debt, effectively pushing the financial risk onto smaller operators and lenders.
This financial engineering has not gone unnoticed by risk assessors. The cost to insure Oracle’s debt against default—reflected in Credit Default Swaps (CDS)—spiked to its highest level since 2009 earlier this month, as concerns mount over the company’s aggressive spending relative to cash flow bnnbloomberg.ca. Furthermore, fears of an infrastructure “glut” are surfacing, with reports of borrowers seeking loans for up to 150% of construction costs in a market described as a “lending frenzy” fortune.com.
The Bond Capital View: Asset Discipline in a Hype Cycle
The implications for the broader credit market are clear: capital is in high demand, but discipline is scarce. The current environment mirrors previous boom-bust cycles where looser terms were chased by eager capital. Banks and public markets are aggressively pricing for perfection, betting that demand for compute power will remain exponential indefinitely.
At Bond Capital, we distinguish between the speculative “gold rush” of AI valuation and the tangible “picks and shovels” of infrastructure. The physical build-out—steel, concrete, and energy—requires patient, flexible capital, not speculative exuberance. While public markets focus on complex derivatives and off-balance-sheet maneuvers to hide leverage, our focus remains on direct, asset-backed lending where the collateral is real and the cash flows are visible. We understand complex capex needs, but we finance them with structures that withstand volatility, not ignite it.
