Investors Sell Data Center Bonds as AI Lending Faces Survival of the Fittest Moment

On October 16, investor confidence in whether the AI boom can generate enough revenue to support the massive debts of data centers is waning, leading to a significant drop in the bond prices of several large data center projects in the U.S. Some bonds financing data center construction for companies like Meta, Nvidia, and Oracle have fallen below par. Meanwhile, cloud infrastructure providers, represented by CoreWeave, which is backed by Nvidia, are facing even greater impacts. CoreWeave's bond prices have dropped to below 80 cents on the dollar, reaching levels typically considered distressed, with yields nearing 15% on Thursday; the company's stock price fell 17% this week, while competitor Nebius dropped 18%. Nvidia's market value has also evaporated by about $270 billion over the past week. Ludovic Subran, Chief Investment Officer at Allianz Group, stated that data center bonds are entering a "Darwinian moment," where projects with weaker credit quality will face survival tests. The widening credit spreads due to power supply issues and construction delays reflect that the market had previously been overly optimistic about the execution risks of data center debt.

The core concern of the market lies in the significant gap between the scale of AI infrastructure investment and future revenues. The postponement of OpenAI's IPO until next year, along with the slowing quarterly sales growth of Anthropic, has intensified investor doubts about the sustainability of growth in the AI sector. Technology consulting firm Gartner predicts that by 2030, 80% of new cloud service providers may not be able to continue operating independently. It estimates that AI data center owners will need to achieve $8.5 trillion in revenue by the end of 2030 to cover capital and financing costs and achieve reasonable returns, but consumer and enterprise spending on AI services is expected to reach only $3.6 trillion at most, indicating that over $4 trillion in assets may face impairment risks by 2032. Additionally, some regions in the U.S. are tightening restrictions due to water use, noise, and air pollution issues related to data centers, and delays in power supply approvals further hinder project progress. Investors are also wary of the circular financing model within the industry, where customers and suppliers finance each other. Nvidia CEO Jensen Huang stated on Thursday that he believes CoreWeave does not need Nvidia's backstop support and mentioned that the company's capital costs are decreasing and operational strength is continuously improving.

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