Investor confidence in whether the AI boom can generate enough revenue to support the enormous debt load behind data center construction is fading, the Financial Times reported, with financing bonds for some large U.S. data center projects falling sharply in recent weeks.
Some bonds used to fund facilities for Meta, Nvidia and Oracle are now trading below par. CoreWeave, the cloud computing infrastructure supplier backed by Nvidia, stands out: its bonds have fallen below 80 cents on the dollar, a level the market often treats as distressed, and their yield was nearing 15% on Thursday.
Pressure spreads across debt and equity
CoreWeave shares have dropped 17% this week. Rival Nebius is down 18%, while Nvidia has lost about $270 billion in market value over the past week.
Ludovic Subran, chief investment officer at Allianz in Germany, said data center bonds are going through a "Darwinian moment," with weaker projects facing a test of survival. He said widening credit spreads reflect power supply constraints and construction delays, and also suggest the market had previously been too optimistic in pricing execution risk in data center debt.
Revenue expectations are falling short of the buildout
At the center of investor concern is a large gap between the scale of AI infrastructure investment and future income. OpenAI has pushed its IPO to next year, while Anthropic's quarterly sales growth has slowed, adding to doubts about how durable AI industry growth will be.
Research firm Gartner estimates that by 2030, 80% of new cloud providers may be unable to continue operating independently. It also estimates that AI data center owners would need to generate $8.5 trillion in revenue by the end of 2030 to cover capital and financing costs and earn a reasonable return. By that point, however, spending by consumers and businesses on AI services is projected to reach no more than $3.6 trillion. That implies more than $4 trillion of assets could face impairment risk by 2032.
Permitting and local restrictions are adding strain
In parts of the United States, tighter restrictions tied to water use, noise and air pollution from data centers are slowing projects. Delays in power-supply approvals are also weighing on development timelines.
Investors are also wary of circular financing structures in which customers and suppliers fund one another within the sector. Nvidia chief executive Jensen Huang said on Thursday that he does not believe CoreWeave needs backstop support from Nvidia, adding that the company's cost of capital is falling and its operating strength continues to improve.