As A.I. Companies Borrow Billions, Debt Investors Grow Wary
As A.I. Companies Borrow Billions, Debt Investors Grow Wary
Artificial intelligence companies looking to raise funds are being made to pay lofty interest rates, as debt investors become cautious.
https://www.nytimes.com/2025/12/26/business/ai-debt-investors.html
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But the debt market is telling a different story, some investors say. New artificial intelligence companies looking to raise funds to supercharge their nascent businesses are being made to pay lofty interest rates on the money they borrow, indicative of investors’ skepticism when new, unproven A.I. businesses take on large debts.
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There are other indicators of debt investors’ wariness: Some of the bonds have tumbled in price after being issued, in a sign of increased caution among investors. And the cost of credit default swaps, which protect bond investors from losses, has surged in recent months on some A.I. companies’ debt.
Construction delays at these sprawling data facilities could push out the time it takes before they can start generating revenue from their leases to A.I. companies. Investors also worry that, in the end, there could be less demand for A.I. computing power, creating a glut of unneeded data centers and leading to defaults on the debt used to finance the buildings.
Debt investors are stereotypically seen as pessimists, while stock investors are viewed as optimists. That is largely because of the difference between the two types of investments. Equity investors have unlimited upside for a company and its stock price to grow and keep rewarding their investment. Debt investors are just looking to get their money back with interest.
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A portfolio manager at AllianceBernstein said “We just have to be much more pessimistic and not buy into the hype.” Companies financing the next phase of A.I. infrastructure have gotten more than $100 billion from banks this year, according to data from Refinitiv. In loan for debt deal for Applied Digital, they paid as much as 3.75 percentage points above similarly rated companies, about a 70% increase in interest.
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