AI Debt Financing Surges, Wall Street Credit Markets Begin to Worry They Can't Keep Up

As Wall Street funds the massive data centers and chip infrastructure underpinning the AI boom, a new anxiety is spreading: early signs suggest the credit market's capacity to absorb further debt is approaching its limit. Yields on bonds and loans financing AI infrastructure buildouts have surged to double digits in successive deals. Bankers are finding it increasingly difficult to transfer risk to insurers and other investors. Elon Musk even warned recently that hundreds of so-called "neocloud" companies face the risk of collapse as businesses struggle to obtain new financing. As this unease intensifies and fuels broader concerns about potential economic fallout, Citadel Securities has cautioned clients that even tech giants may be drawn into the fray, as they are backing a large number of projects critical to AI ambitions with their own balance sheets. This risk is increasingly visible in the credit default swap market, which banks and other lenders use to hedge their exposures. In recent days, the cost of insuring against default on debt from companies ranging from Broadcom to SpaceX and Oracle has risen sharply, reaching levels more commonly associated with junk-rated borrowers. The effects have also begun to spill over into the broader credit market.