While tech valuations soar on AI optimism, experts are increasingly worried about the financial plumbing behind the $3 trillion datacenter construction boom. The core concern is a $1.5 trillion funding gap that industry giants can’t cover with their own cash.
This gap is reportedly being plugged by private credit, a form of “shadow banking” that operates with less regulatory scrutiny. This sector is “raising the alarm at the Bank of England,” and its deep involvement in AI infrastructure is causing concern. For example, Meta has already tapped the private credit market for $29bn to fund a datacenter expansion.
The “healthy” part of the boom is the spending by cash-rich “hyperscalers” like Google and Microsoft. The “unhealthy” part, according to Gil Luria of DA Davidson, involves “speculative assets without their own customers” being funded by this eager-to-lend debt market.
Luria warns that providers of this debt “may not be properly assessing the risks” of funding a new, unproven category built on “very quickly depreciating assets.” A hedge fund founder, Harris Kupperman, echoed this, stating datacenters will depreciate twice as fast as the revenue they generate, putting lenders in a precarious position.
If this influx of debt capital into speculative projects continues and ultimately fails, the ramifications could extend far beyond Silicon Valley. Luria cautions that if the debt load reaches hundreds of billions, it “could end up representing structural risk to the overall global economy.”