Bessent Dismisses AI Financing Fears Despite Credit Market Warning Signs

U.S. Treasury Secretary Scott Bessent downplayed fears surrounding rising debt and tightening financing conditions linked to the swift growth of artificial intelligence (AI) infrastructure investment. Even as credit markets raise alarms, Bessent insisted that funding persists across the wider AI sector. During an Oct. 28 CNBC interview, he said the Treasury was watching concerns over double-digit yields on some AI-related debt but maintained that this was not a cause for concern.

He argued that neocloud companies, which supply AI computing infrastructure for rent, represented only a minor portion of the broader AI ecosystem, implying that issues faced by individual operators did not signal a wider market crisis. However, credit market data paints a more worrying picture. Bloomberg reported that at least 18 speculative-grade bonds and leveraged loans tied to data centers were charging double-digit yields.

JPMorgan Chase and Goldman Sachs restructured the terms of a $5 billion loan for AI infrastructure company Volta Infrastructure to entice investors, resulting in a yield surpassing 11%. Such high-yield levels signal lenders' increasing demand for higher compensation for the associated credit risks. Borrowing costs are also surging for highly rated debt.

Morgan Stanley reported that yields on top-rated data center bonds have climbed to around 7%, up from below 5% at the start of the year. U.S. market maker Citadel Securities cautioned that the mounting financial strain on AI infrastructure companies could eventually impact major technology firms backing them. The cost of credit default swap (CDS) protection on Oracle had reached a record high last week, reflecting growing apprehension over credit risks related to the expanding AI investment.

The neocloud sector also faces potential consolidation. XAI CEO Elon Musk warned on Oct. 25 that companies with insufficient revenue streams beyond AI data centers had effectively been excluded from financing markets and that more than 200 neocloud operators could face widespread failures or consolidation. Despite these concerns, Bessent highlighted that financing activity and dealmaking were ongoing, citing companies raising funds through equity markets as evidence.