Who's Picking Up The Tab For These AI Spending Spree We Are Seeing?

The astonishing demand for computing power driven by the AI revolution is fueling an equally staggering wave of capital investment.

According to a Morgan Stanley prediction in July of this year, global spending on AI data centers and chips is projected to reach a total of $2.9 trillion by 2028. Cash-rich tech giants are expected to bear the largest share, approximately $1.4 trillion. The remaining gap, estimated at $1.2 trillion, is anticipated to be filled through debt financing, with private credit funds poised to be the main providers, expected to supply $800 billion of that amount.

To meet this unprecedented funding demand, a powerful alliance comprising global banks, private credit giants, and specialized lenders is forming. These institutions are not only capable of rapidly issuing multi-billion-dollar checks. Still, they are also actively exploring innovative financing structures, such as using AI chips as collateral. From JPMorgan Chase's nearly $10 billion loan for an OpenAI-related project to chip-collateralized financing backed by Blackstone, new deal structures are emerging rapidly.

This AI-driven capital race is creating significant opportunities for financial institutions that can quickly mobilize funds, assume, and manage risks. It is testing the adaptability of traditional banks while also providing a historic platform for expansion for emerging forces like private credit.

Traditional Banking Giants Are Taking The Lead

JPMorgan Chase has demonstrated an aggressive stance in AI data center financing. When data center developer Crusoe needed to borrow $9.4 billion to build a large data center complex for Oracle and OpenAI, JPMorgan agreed to shoulder the entire financing risk alone, deviating from the banking industry's typical risk-sharing model. According to people familiar with the matter, the transaction was arranged by the bank's securitized products division, which plans to syndicate portions of the debt later. This financing for the data center in Abilene, Texas, helped propel JPMorgan from seventh place to the top spot in IJGlobal's latest rankings for telecom project debt underwriters.

The bank also led the underwriting of $38 billion in loans for two other Oracle data center projects being developed by Vantage, a deal poised to become the largest construction loan ever in the data center sector. To strengthen its position in this area, JPMorgan this month appointed Michael Johnson and former Citi banker Francisco Abularach to jointly lead its global infrastructure client advisory and capital markets business.

Japanese Banks Are Catching Up, With Their Low Interest Rate

Benefiting from Japan's low-interest-rate environment, Japanese banks possess a natural cost advantage in providing capital for large infrastructure projects, making them a force to be reckoned with in the data center financing market. Mitsubishi UFJ Financial Group and Sumitomo Mitsui Banking Corporation are among the most active. According to the latest IJGlobal rankings, SMBC and MUFG ranked second and third, respectively, in telecom project transactions. They have participated in several major deals this year, including the aforementioned $38 billion Vantage project and a $3.1 billion construction loan for Rowan Digital Infrastructure's data center campus in Maryland.

People involved in processing data center deals noted that Japanese banks can offer lower-cost financing compared to their US counterparts. SMBC has been a pioneer in this field. According to one insider, SMBC arranged one of the first data center transactions as early as 2016 for an EdgeConneX project. The bank also pioneered efforts to have credit rating agencies assess data center deals, paving the way for more lenders to enter the market.

Private Equity: Data Center Owner, Also Loan Provider

Private equity giant Blackstone plays a dual role in the data center sector. It not only owns major data center developers like QTS and AirTrunk, but its credit and insurance arm has also become a significant lender, attracting market attention with its innovative financing structures. One of Blackstone's most notable deals was leading a $7.5 billion debt financing for cloud services provider CoreWeave, which used the high-performance Nvidia chips it holds as collateral. According to a lender list seen by The Information, Blackstone provided $4.4 billion in this record-breaking financing of its kind.

This "chip-collateralized loan" model carries risks, as chips have a shorter effective lifespan than other data center assets. But the risk comes with 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, significantly above traditional data center financing. Meanwhile, Blackstone also engages in traditional, lower-risk data center lending, such as a $1 billion debt financing for Aligned Data Centers, but typically when projects have contracts with investment-grade tenants.

More Investors Are Rushing In

As the market heats up, more alternative investors are entering the fray, leveraging flexible strategies to provide crucial capital for earlier-stage, higher-risk projects. Pacific Investment Management Co. (PIMCO) is one such example. The bond giant, which manages $2.1 trillion in assets, won the lead underwriter mandate for $26 billion of the $29 billion debt sought by Meta Platforms 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 into private credit, with a focus on financing physical assets.

Australia's Macquarie Bank is known for its willingness to back early-stage projects, employing investment methods including traditional debt, convertible notes, and preferred stock, sometimes even before developers secure tenants. In January, the bank agreed to provide up to $5 billion in preferred stock to Applied Digital, which is transitioning from bitcoin mining to AI data centers, with an annual dividend rate of 12.75%. In another deal, Macquarie provided up to $250 million in loans to data center site builder Fermi; the deal terms included a feature known as the "Macquarie multiple," effectively ensuring the bank would receive 1.5 times its principal within 12 months.

Private credit giants Blue Owl and Magnetar Capital are also noteworthy. Blue Owl, which manages over $280 billion in assets, formed a real estate credit team last year and has already invested over $600 million in data center projects. Magnetar, the largest pre-IPO investor in CoreWeave, also participated in the pioneering loan transactions secured by Nvidia chips.