Podcast Summary: Thoughts on the Market – "Why Credit Is Core to AI Expansion"

Date: August 19, 2025
Hosts:

• Vishy Tirupatoor, Chief Fixed Income Strategist
• Vishwas Bhatkar, Head of US Credit Strategy
• Carolyn Campbell, Head of Consumer and Commercial ABS Research

Episode Overview

This episode of "Thoughts on the Market" dives into the critical role credit and varied financing channels will play in the rapid expansion of data centers to support artificial intelligence (AI) growth. The discussion addresses key themes, market skepticisms, and how current CapEx cycles fundamentally differ from those of decades past. The hosts analyze investor feedback to their recent report on bridging the data center financing gap and explain why credit markets—both public and private—will be at the heart of AI-driven technological transformation.

Key Discussion Points and Insights

1. Scale and Structure of Data Center Financing

[00:12–01:00]

• The next wave of AI innovation will require around $3 trillion in data center capital expenditure by 2028.
• About half expected from cash flows of dominant hyperscaler tech firms (top-tier, cash-rich players); the rest must come through credit markets.
• Financing for these initiatives will be diversified across multiple credit channels, not just corporate debt.

2. Comparing to the 1990s Telecom CapEx Cycle

[01:00–02:33]

• Skeptics compare today’s momentum to the overbuilt and debt-laden telecom boom of the late 1990s.
• “Back then, the CapEx cycle…was largely financed on corporate balance sheets…companies…were mid to low credit quality and not cash rich. That’s very different from the hyperscalers…their credit ratings range all the way from AAA to high single A, so very much at the top end of the spectrum.”
  — Vishwas Bhatkar [01:15]
• Optimism on AI monetization: Momentum already evidenced in recent earnings reports.
• Private credit, particularly investment grade (IG) and those backed by high-quality tenants, will be a major funding channel.
• Risks likely concentrated among lower-rated, non-hyperscaler tenants.

3. Fears of Overbuilding and Refinancing Pressure

[02:33–03:24]

• Investors are concerned the market may be overbuilt and face struggles with refinancing after five years.
• “The biggest challenge to building new data centers in the US today is access to power…a 45 gigawatt power bottleneck…should keep the market structurally under supplied…and limit overbuild risk.”
  — Carolyn Campbell [02:48]
• Given this bottleneck, vacancy rates are expected to remain low for the medium term.

4. Investor Demand and Tenant Quality in Securitized Credit

[03:24–04:46]

• Demand, not supply, is seen as the main limiting factor for securitized credit such as ABS and CMBS.
• “As the supply grows, so too will the number of accounts and the size within which they're participating. That being said, the market is already starting to price in a higher risk of tenant weakness.”
  — Carolyn Campbell [03:48]
• Deals with higher exposure to AI names or lower investment-grade proportions are already pricing wider than those dominated by IG or colocation/enterprise clients.
• Diversification (by region, tenant type, and cloud/enterprise exposure) will be critical to managing risk.
• Winners and losers will emerge in this evolving industry.

5. Impact on Public Credit Markets

[04:46–05:50]

• There is a risk that large-scale AI/data center investment may divert capital away from public credit over time.
• “Insurance allocations are shifting towards private and securitized credit at the expense of corporate credit…You could say supply needs rise. We have about $800 billion of financing that needs to be met by private credit while inflows slow down.”
  — Vishwas Bhatkar [05:17]
• While a fundamental risk isn’t anticipated for public credit, the spread may widen if demand shifts and private credit takes priority.

Notable Quotes & Memorable Moments

• “The risk in some ways could come from the sub investment grade non hyperscaler type tenants. And that's an important theme to be watching, but by and large this cycle is very different in our view from the late 1990s.”
  — Vishwas Bhatkar [02:20]

• “We expect that the churn in the vacancy rates will actually remain quite low in the medium term.”
  — Carolyn Campbell [03:05]

• “Ultimately, there will be winners and losers in this new AI industry. And so the diversification across region and across tenant type…will be very important as we assess the risks of ABS and CMBS deals.”
  — Carolyn Campbell [04:14]

• “I wouldn't view this as a fundamental risk for public credit, but certainly a reason why credit spreads may not stay as tight as they are over a period of time.”
  — Vishwas Bhatkar [05:45]

• “Credit markets will play a major role in enabling AI driven technology diffusion. As always, there will be winners and losers, but data center financing as a theme for credit investors is here to stay.”
  — Vishy Tirupatoor [06:20]

Timestamps for Key Segments

• 00:12: Main theme introduction; overview of $3 trillion capex need
• 01:00: Differences between 1990s telecom and today’s capex cycles (Vishwas)
• 02:33: Power constraints and overbuild risk (Carolyn)
• 03:24: Investor demand and tenant quality in securitized credit (Carolyn)
• 04:46: Potential impact on public credit markets (Vishwas)
• 05:50: Closing high-conviction remarks on the future role of credit in AI (Vishy)

Overall Tone and Takeaways

The conversation is measured, analytical, and realistic, emphasizing both the opportunities and risks inherent in financing the AI-led data center expansion. The team is bullish on the sector’s transformative potential, yet candid about areas of investor concern—especially relating to tenant quality, risk distribution, and possible ripple effects in credit markets. They repeatedly stress the importance of diversification and staying alert to emerging risks in what is expected to be a durable theme for years to come.