Episode Details

As AI investment keeps growing, our strategists Carolyn Campbell and Vishwas Patkar discuss the many ways tech infrastructure gets financed and the opportunities for investors.

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----- Transcript -----

Carolyn Campbell: Welcome to Thoughts on the Market. I'm Carolyn Campbell, Morgan Stanley's Asset-Backed Securities Strategist. 

Vishwas Patkar: And I'm Vishwas Patkar, Morgan Stanley's Head of U.S. Corporate Credit Strategy. 

Carolyn Campbell: Today, how fixed income markets are helping fund the AI build-out. 

It's Thursday, June 18th, at 10am in New York. 

Let's get right into it, Vishwas. We've both come on this podcast before to talk about how credit markets are financing the AI build-out. And over the last ten months, I think it's fair to say that things are faster, broader, deeper than we perhaps expected initially. 

This investment now spans investment-grade corporate bonds, high yield loans, and a range of securitized products. From your seat in corporate credit, why does AI infrastructure matter so much, to investors right now? 

Vishwas Patkar: This is a big talking point in our client discussions. it's also telling that less than a year ago, we wrote about this topic for the first time, identifying a $1.5 trillion financing gap that credit markets could help bridge. At that time, data center debt was not something that investors were really focused on. Yet less than 12 months forward, this, I think, is the number one theme dominating both your and my market. 

And why it's important, I would say, is across, three key vectors. First, just the scale. So, if you look at overall AI-related debt issuance so far this year, we're close to $250 billion. For the balance of the year, we expect that number to double, so about $500 billion of total AI debt financing for 2026. 

Increasingly the second vector, I think, is around the complexity of deals. So initially, while AI financing was dominated by vanilla investment-grade corporate bond deals, we are now seeing that broaden out into project finance style deals in the high-yield market. We have seen an uptick in chip financing across the different credit silos. 

And that's important for investors, as identifying value across these different options does require deep credit expertise. And third, as this investment cycle rolls along, it's also important to be cognizant of risks that are building. Not just from a very broad top-down sense around the demand for compute. But also, what are some of the nuances in these different structures – whether it is in data center construction or is in chip financing that investors will need to monitor. 

So, it's across these three themes that we think data center debt financing is gaining importance. 

Carolyn Campbell: Now, the underlying demand for AI infrastructure is very strong. That doesn't necessarily mean that every bond tied to this theme is automatically going to be attractive. And as you mentioned, [$]500 billion of supply for the year; a large amount of complexity between those structures.

How should credit investors think about the various risks within these different structures? 

Vishwas Patkar: So, in investment grade, the story is a bit simpler. So, we have had unsecured hyperscaler bond issuance. We have had issuance from semiconductor names. And then we've had some, what we call, private style data center deals. 

But the vast majority still comes from hyperscaler investment grade rated bonds. For this market, our focus is less on fundamentals because fundamentals are very strong. And then hyperscaler are some of the more most creditworthy compa