AI Capital Surge: 2.9 Trillion Dollars by 2028, Driven by Data Center Demand

An unprecedented surge in capital investment is underway, driven by the escalating computational demands of artificial intelligence (AI). According to a recent analysis, the global expenditure on AI data centers and chips is projected to reach 2.9 trillion dollars by 2028. This massive investment is expected to be split between tech giants, who will contribute approximately 1.4 trillion dollars, and debt financing, which will cover the remaining 1.2 trillion dollars. Private credit funds are anticipated to provide a significant portion of this debt financing, estimated at 800 billion dollars.

To meet this unprecedented financial requirement, a powerful alliance comprising global banks, private credit giants, and specialized lending institutions is forming. These entities are not only capable of issuing checks worth tens of billions of dollars but are also actively exploring innovative financing structures, such as using AI chips as collateral. New transaction models are rapidly emerging, from JPMorgan Chase's nearly 100 billion dollar loan for the OpenAI project to Blackstone Group's chip-backed financing.

This AI-driven capital race is creating enormous opportunities for financial institutions that can quickly mobilize funds and manage risks. It is testing the adaptability of traditional banks while providing a historic expansion stage for emerging forces like private credit. JPMorgan Chase has demonstrated an aggressive stance in the AI data center financing sector. When data center developer Crusoe needed to borrow 94 billion dollars to build large data center complexes for Oracle and OpenAI, JPMorgan Chase agreed to assume the entire financing risk, deviating from the typical risk-sharing model used in the banking industry.

This transaction, arranged by the bank's securitized products department, is expected to partially distribute some of the debt through a syndicate. The financing for the data center in Abilene, Texas, helped JPMorgan Chase rise to the top spot in the latest IJGlobal ranking for telecom project debt underwriting, jumping from seventh place. The bank also led the underwriting of 380 billion dollars in loans for two other Oracle data center projects developed by Vantage, which are poised to become the largest construction loans in the data center sector to date. To strengthen its position in this area, JPMorgan Chase recently appointed Michael Johnson and former Citibank executive Francisco Abularach to jointly lead its global infrastructure client consulting and capital markets business. Johnson, who has worked in the energy banking sector for three decades, stated, "We are not afraid to break the mold and try new things."

Low interest rates in Japan have given Japanese banks a natural cost advantage in providing capital for large infrastructure projects, making them a significant force in the data center financing market. Mitsubishi UFJ Financial Group and MUFG are particularly active. According to the latest IJGlobal ranking, SMBC and MUFG are ranked second and third, respectively, in telecom project transactions. They have participated in several major transactions this year, including the aforementioned 380 billion dollar Vantage project and a 31 billion dollar construction loan for Rowan Digital Infrastructure's data center campus in Maryland.

Industry insiders note that Japanese banks can offer lower-cost financing compared to their American counterparts. SMBC is a pioneer in this field, having arranged one of the first data center transactions for EdgeConneX in 2016. The bank also pioneered the evaluation of data center transactions by credit rating agencies, opening the door for more lending institutions to enter the market. Quynh Tran, SMBC Americas' vice president of global structured finance, stated, "We know that as long as someone is willing to invest, the industry's tailwinds, strong contracts, and high-quality tenants will be equally effective for other participants."

Private equity giant Blackstone Group plays a dual role in the data center sector. It owns large data center developers like QTS and AirTrunk, and its credit and insurance departments are significant lenders, attracting market attention with their innovative financing structures. Blackstone's most notable transaction is leading a 75 billion dollar debt financing for cloud service provider CoreWeave, with the loan secured by the company's NVIDIA high-performance chips. According to a lender list seen by The Information, Blackstone provided 44 billion dollars in this, the largest financing of its kind. This "chip-backed loan" model comes with risks, as the effective lifespan of chips is shorter than that of other data center assets. However, the high risk also brings high returns. According to CoreWeave's IPO filing, the interest rate on this debt was as high as 10.5% at the end of last year, far exceeding traditional data center financing. Meanwhile, Blackstone is also involved in lower-risk, traditional data center lending, such as providing 10 billion dollars in debt financing to Aligned Data Centers, but only after the project has signed agreements with investment-grade tenants.

As the market heats up, more alternative investors are entering, providing key capital for earlier-stage, higher-risk projects with flexible strategies. Pacific Investment Management Company (PIMCO), which manages 2.1 trillion dollars in assets, secured a 260 billion dollar debt underwriting mandate when Meta Platforms sought 290 billion dollars in financing for its new data center in Louisiana. A person familiar with the company's strategy said PIMCO is expanding its business from traditional fixed income to private credit, with a focus on physical asset financing. Australia's Macquarie Bank is known for its willingness to support early-stage projects, investing through traditional debt, convertible notes, and preferred stock, sometimes even before developers secure tenants. In January, the bank agreed to provide Applied Digital, which is transitioning from Bitcoin mining to AI data centers, with up to 50 billion dollars in preferred stock with a 12.75% annual dividend. In another transaction, Macquarie provided Fermi, a data center site developer, with up to 2.5 billion dollars in loans, with terms designed to ensure the bank could earn a 1.5 times return on its principal within 12 months.

Blue Owl and Magnetar Capital, two private credit giants, are also noteworthy. Blue Owl, which manages over 280 billion dollars in assets, formed a real estate credit team last year and has invested over 6 billion dollars in data center projects. Magnetar, as the largest investor in CoreWeave before its IPO, also participated in the first innovative chip-backed loan transactions.