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Welcome to Thoughts on the Market. I am Vishi Tirupator, Moghustan Ali's Chief Fixed Income Strategist. Today, the critical question behind the AI driven capex cycle that is front and center for markets year to date how is the credit market financing of this ecosystem evolving? It's Wednesday, June 3rd at 2:00pm in New York. When we first discussed the role of credit markets in financing the AI and data center buildout around the middle of last year, the direction of travel was clear. Realizing the transformative potential of AI requires unprecedented levels of capex. What has really surprised us since is the scale and speed of that spending, both of which have exceeded our expectations by a wide margin. The upward revision in capex expectation has been dramatic. A year ago we projected the combined CapEx of the five large hyperscalers at roughly 450 billion in in both 2026 and 2027. After the first quarter earnings reports, Morgan Stanley Internet equity analysts led by Brian Nowak now expect hyperscaler capex of roughly 800 billion in 2026 and 1.2 trillion in 2027. One data point really captures the surge in the underlying demand for compute. According to OpenRouter, the global weekly token usage, which is a key point proxy for compute, has risen by roughly 350% since early January, increasing from about 6 trillion tokens to 28 trillion tokens. Credit channels for financing this capex have not only been broader and deeper than we anticipated, spanning public and private markets, but have been remarkable in the structural innovation that is blurring the lines between public and private markets. Over 200 billion of public AI related issuance across different credit channels has happened to just in the first five months of this year. We had previously assumed unsecured issuance would be limited by the scale of the largest non financial issuers, confined to investment grade credit only and largely US dollar denominated. Instead, some hyperscaler issuance has now far exceeded even the largest telecom names. Funding is expanded well beyond dollars into euros, pound sterling, Swiss francs, Japanese Yen and Canadian dollar markets. The issuer base has also broadened to include data center REITs and NEO clouds, particularly in the high yield market. The scope of financing has also widened beyond the data center shelves themselves. GPU financing, which we assumed would be funded entirely through equity capital, has begun to migrate into credit markets. Funding is now coming through broadly syndicated loan market and asset based financing by with ABS structure not far behind. Structural innovation illustrates how rapidly the credit ecosystem is adapting to the complexities of demands of AI driven capex financings that combine elements of project finance tranching residual value guarantees along with high yield issuance backed by hyperscaler guaranteed leases. These are innovations that we have never seen before. These structures have expanded the investor base, reduced the funding frictions, and further blurred traditional boundaries between both corporate and project finance and public and private credit markets. At the same time, physical, operational and political constraints are beginning to shape the pace and the composition of the AI infrastructure buildout and by extension, the demand for financing. Grid access, power generation, equipment, skilled labor and permitting delays are emerging as significant constraints. These are compounded by political and regulatory frictions at the local, national and international level. As power availability becomes a gating factor, the AI buildout is likely to pull energy infrastructure financing more tightly into the orbit of AI infrastructure financing. The clear takeaway is this the capex requirements underpinning AI infrastructure or expanding exponentially and with them the role of credit markets in financing this build out. Along the way, there will be winners and losers, periods of adjustment and a range of physical, financial and political constraints that shape outcomes on the margin. But the broader trajectory is certain. The scale, duration and strategic importance of AI infrastructure investments means that the financing of this will remain a defining theme of for credit markets and credit investors for years to come. Thanks for listening. If you enjoy the podcast, please leave us A review wherever you listen and share thoughts on the market with a friend or colleague today.
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Podcast: Thoughts on the Market (Morgan Stanley)
Host/Speaker: Vishi Tirupator, Morgan Stanley Chief Fixed Income Strategist
Date: June 3, 2026
This episode examines the rapidly evolving landscape of credit markets as they respond to the unprecedented capital expenditure (capex) demands of artificial intelligence (AI) infrastructure buildout—especially among hyperscalers and data center operators. Vishi Tirupator explores how innovations in corporate and project financing are creating new playbooks for funding, the unexpected scope and pace of AI-driven spending, and the emerging constraints and strategic implications for investors and issuers alike.
Vishi Tirupator underscores that the AI infrastructure buildout, now vastly exceeding earlier expectations in both scale and speed, is fundamentally transforming credit markets. With dramatic innovations in financing structures, expanding participation both in public and private markets, and new operational and regulatory challenges, the future of AI financing will be shaped by responses to these complexities. This theme, he argues, will continue to define the trajectory of capital markets for the foreseeable future.