The massive capital expenditure for AI infrastructure will not primarily come from traditional unsecured corporate credit. Instead, a specialized form of private credit known as asset-based finance (ABF) is expected to provide over $800 billion of the required $1.5 trillion in external funding.

Unlike prior tech revolutions funded mainly by equity, the AI infrastructure build-out is increasingly reliant on debt. This blurs the line between speculative growth capital (equity) and financing for predictable cash flows (debt), magnifying potential losses and increasing systemic failure risk if the AI boom falters.

For the first time in years, leading-edge tech is incredibly expensive. This requires structured finance and massive capital, bringing Wall Street back to the table after being sidelined by cash-rich tech giants. The chaos and expense of AI create a new, lucrative playground for financiers.

A new risk is entering the AI capital stack: leverage. Entities are being created with high-debt financing (80% debt, 20% equity), creating 'leverage upon leverage.' This structure, combined with circular investments between major players, echoes the telecom bust of the late 90s and requires close monitoring.

Trillion-dollar tech companies are issuing massive bonds to fund AI CapEx, attracting immense demand from yield-hungry institutions. This 'hoovers' up available capital, making it harder and more expensive for smaller, middle-market businesses to secure financing and deepening the K-shaped economic divide.

The massive ~$1.5 trillion in debt financing required for AI infrastructure will create a supply glut in the investment-grade (IG) bond market. This technical pressure, despite solid company fundamentals, makes IG bonds less attractive. High-yield (HY) bonds are favored as they don't face this supply headwind and default rates are expected to fall.

The AI boom's funding is pivoting from free cash flow to massive bond issuances. This hands control to credit investors who, unlike vision-driven equity investors, have shorter time horizons and lower risk appetites. Their demand for tangible near-term impact will now dictate the market's risk perception for AI companies.

Once considered safe due to low CapEx and recurring revenue models, the technology sector now shows significant credit stress. Investors allowed higher leverage on these companies, but the sharp rise in interest rates in 2022 exposed this vulnerability, placing tech alongside historically troubled sectors like media and retail.

Barclays forecasts a 40% jump in net investment-grade debt supply in 2026, driven by tech sector CapEx and renewed M&A activity. This massive influx of new bonds will test market demand and could lead to wider credit spreads, even if economic fundamentals remain stable.