While Wall Street stays riveted by the fall of Jensen Huang, yet another industry threat looms – namely the mountains of debt on the typical AI company’s balance sheet and the fact that financing is starting to run dry, On The Money has learned.
Debt financing has been the go-to method for AI players to fuel their wild expansion over the past two years. More than $560 billion of it has been issued worldwide in 2026 alone for data centers, cloud services, chips – all the stuff that goes into AI.
But AI executives say the debt spigot has recently been squeezed shut, making it prohibitively pricey even for bigger players in recent weeks. Not only are many companies being rated below-investment grade, or junk — meaning they have to pay up to sell debt — banks are getting fickle with lending.
Indeed, sources tell On The Money that banks are now trying to unload their portfolios of AI data-center loans instead. Teams inside the biggest banks are re-evaluating their portfolios to match current, more dyspeptic market conditions as opposed to those forgone bubble valuations at which the loans were made.
“I’ve been working on data center financing since 2021,” said one banker who asked not to be named. “Every bank is stuffed to the gills with this stuff and looking to dump their portfolios.”
Maybe the worst part of the AI correction (or is it the start of a crash?) is that it has little to do with the revelations that Nvidia’s now-ex-CEO had a fling with a woman who the government alleges could also be a spy for the Chinese.
In other words, bad news – the AI debt debacle probably isn’t something that can be fixed with better corporate governance at Nvidia.
Rather, the problem is more existential and intractable – including all that debt, and fears that company valuations may have amounted to irrational exuberance that seems to have outpaced financial performance.
On top of that, anti-AI socialists are now poised to dominate DC policy with the Dems taking both chambers of Congress during the midterms.
As one major AI investor told me, all of the above is “causing a s–tstorm in the debt markets right now.”
Yes, AI is here to stay for lots of reasons including its use in medicine, business and national security. There are planned stock offerings by its two biggest players. Anthropic is likely coming public next week with an IPO that will value the company at around $1.4 trillion. OpenAI is aiming for a similarly sized IPO early next year.
Even if those deals happen (and there’s no guarantee they will given the markets’ sour mood), these companies are big and established. They raised their debt already for much of their buildout and infrastructure. It’s the broader AI business that is and will be feeling the squeeze as the debt window closes, maybe the defining moment for AI signaling a long-awaited correction, industry executives say.
Companies like CoreWeave, a so-called neocloud that financed its operations largely through debt, will have a hard time raising money in the bond market. Given its stock price, equity investors won’t be in the mood to throw it money either.
That vicious cycle – debt markets closed or too expensive and picky stock buyers – could easily turn into an AI winter for many companies, or maybe all of them. Sure AI-related outfits like Meta, Google, Amazon and Microsoft can rely on their diversified business models to find investor cash.
But once Anthropic does its IPO, will it really want to tap debt markets for additional financing? It’s looking at a debt rating in the junk bond range once it becomes a public company. It’s also looking at a likely slowdown from its torrid growth.
All of the above amount to underappreciated truths about the booming business of AI. Investors might want to take heed ahead of any blockbuster IPOs.
