Large tech companies are creating SPVs—separate legal entities—to build data centers. This strategy allows them to take on significant debt for AI infrastructure projects without that debt appearing on the parent company's balance sheet. This protects their pristine credit ratings, enabling them to borrow money more cheaply for other ventures.

Private credit has become a key enabler of the AI boom, with firms like Blue Owl financing tens of billions in data center construction for giants like Meta and Oracle. This structure allows hyperscalers to expand off-balance-sheet, effectively transferring the immense capital risk of the AI build-out from Silicon Valley tech companies to the broader Wall Street financial system.

A major segment of private credit isn't for LBOs, but large-scale financing for investment-grade companies against hard assets like data centers, pipelines, and aircraft. These customized, multi-billion dollar deals are often too complex or bespoke for public bond markets, creating a niche for direct lenders.

The financing for the next stage of AI development, particularly for data centers, will shift towards public and private credit markets. This includes unsecured, structured, and securitized debt, marking a crucial role for fixed income in enabling technological growth.

Private credit firm Blue Owl funds AI infrastructure using Business Development Companies (BDCs), which are often publicly traded. This structure functions like a Real Estate Investment Trust (REIT), allowing retail investors to participate in high-yield private credit deals through stock ownership and dividends.

The enormous capital needed for AI data centers is forcing a shift in tech financing. The appearance of credit default swaps on Oracle debt signals the re-emergence of large-scale debt and leverage, a departure from the equity and free-cash-flow models that have characterized the industry for two decades.

Silver Lake cofounder Glenn Hutchins contrasts today's AI build-out with the speculative telecom boom. Unlike fiber optic networks built on hope, today's massive data centers are financed against long-term, pre-sold contracts with creditworthy counterparties like Microsoft. This "built-to-suit" model provides a stable commercial foundation.

Cash-rich hyperscalers like Meta utilize Special Purpose Vehicles (SPVs) to finance data centers. This strategy keeps billions in debt off their main balance sheets, appeasing shareholders and protecting credit ratings, but creates complex and opaque financial structures.

Cash-rich tech companies avoid owning data center infrastructure not due to a lack of funds, but because their capital yields far higher returns in core technology. They strategically outsource the lower-margin, stable infrastructure assets to specialized investors, optimizing their return on invested capital.