Banks and investors grow wary of AI debt after market selloff, Reuters reports

Banks and credit investors are stepping up scrutiny of AI-related debt deals and showing reluctance to increase their exposure, Reuters reported on November 9, citing several banking and credit sources.

Cooling even on guaranteed deals

Some banks that were lining up to fund AI deals just a few weeks ago are now telling market participants they would be reluctant to finance additional deals even when they involve guarantees from the sector's marquee technology companies. Some lenders have hesitated even on deals backstopped by Anthropic and Google, the sources said, without naming the lenders. Anthropic and Google declined to comment.

The pullback has been exacerbated by the recent stock market slide, which erased $2.5 trillion in market value from the Nasdaq 100 on Thursday and sent the index into a correction. The US midterm election results have also added to worries about tighter oversight of data centers.

"Over the past year there was unbridled enthusiasm to provide debt to neoclouds, anyone who was building data centers or some sort of AI asset," said Chris Poggi, a finance partner at Ropes & Gray. "Debt investors' books have become full and now they are assessing if they have extended themselves as much as they're going to extend themselves this year."

Riskier borrowers hit hardest

The retreat is most pronounced among riskier borrowers such as neocloud companies and standalone data center operators. Baird Equity Research said Oracle and CoreWeave are among those that could be affected by construction delays or moratoriums. CoreWeave's shares are down 35% this year and its bonds have fallen sharply in secondary trading. Nasdaq-listed Nebius explored a high-yield bond in September but decided last month not to proceed, one source said.

Bond investors are also more selective. The spread on 10-year hyperscaler debt has widened by about 50 basis points this year, versus roughly 20 basis points for high-quality industrial companies not tied to AI, according to Bank of America analyst Yuri Seliger. Meta and SpaceX bonds issued this year are trading below par.

Demand for capital remains huge

Borrowing needs remain enormous. Goldman Sachs Research projects global hyperscaler debt issuance will reach $420 billion in 2027, more than 60% above its $250 billion estimate for 2026. Lenders are stress-testing cash flows for downturns and scrutinizing service obligations, operational deadlines and the conditions under which large tech customers could cut or terminate commitments.

At JPMorgan Chase, loans backed by other income-producing properties, including data centers, stood at $29 billion at the end of the third quarter, or 12% of its commercial real estate book. "Most banks and credit investors will take a wait and see approach," said Jay Bala, CEO of alternative asset manager AIP, referring to how AI growth will fare after the Democratic sweep of Congress.

Sources: The Economic Times / Reuters, U.S. News / Reuters, Investing.com / Reuters