An AI capital crunch is beginning to threaten the technology industry’s plans for a huge expansion of data centres and computing infrastructure, as investors and lenders show signs of becoming more selective.
The sector is already facing shortages of chips, materials and other physical components. Political opposition to new data centres is also growing, while the sums required to fund the next phase of expansion continue to rise.
OpenAI has reduced the target for its latest fundraising round to $20 billion (£15.2 billion) from $30 billion, according to reports. The company has secured about $11 billion in commitments so far, less than half its original goal.
Meta has also faced pressure in the debt markets. S&P Global changed the technology group’s credit outlook from “stable” to “negative”, citing negative cash flow and uncertainty over its capital expenditure plans.
The technology, media and telecoms lending chief at a large European bank said last week that the institution was approaching the limit of what it could lend to the sector, given its existing exposure.
Yet the major cloud computing companies continue to plan significant spending. A group of hyperscalers is expected to invest $800 billion this year and more than $1 trillion next year, according to the raw estimates.
Wall Street veteran Ed Yardeni asked: “Now, another concern is moving to the forefront: Does enough capital even exist to finance everyone’s ambitious AI spending plans?”
His concerns were echoed by warnings from senior industry figures. Broadcom chief executive Hock Tan said capital could become the biggest constraint on AI, while BlackRock chief executive Larry Fink described competition for capital as the fiercest he had witnessed in his career. Nvidia chief executive Jensen Huang said demand from so-called neocloud companies was “off the charts” but capital was scarce.
Technology companies turn to debt and equity markets
The funding requirement could grow further because AI businesses are not yet expected to generate enough revenue to make the infrastructure investment self-sustaining.
Gartner estimates that data centre owners would need cumulative revenue of $8.5 trillion by the end of the decade to justify their investments. Enterprise and consumer AI revenue is forecast to reach no more than $3.6 trillion over the same period.
Technology companies are therefore continuing to raise money. Oracle has announced plans to secure $20 billion through a combination of shares and bonds, following SpaceX’s $40 billion debt financing, Meta’s plans for a $95 billion equity raising and Microsoft’s $25 billion debt issue.
Meta has acknowledged an “increasingly challenging environment for raising capital” and indicated that it may need to accelerate fundraising rather than delay it. A special committee said it would be prudent to secure funding before more companies absorbed the capital available in the market.
Wall Street may still provide finance to investment-grade companies and projects backed by suppliers, according to Bank of America analysts. However, those arrangements, sometimes described as circular deals, are also facing increased scrutiny, even as the bank sees positive indicators for AI chipmakers into next year.
The technology industry is competing for funds with the US government, which ran a deficit of almost $2 trillion in the last financial year. That has added further pressure to the bond market.
“All those things combined basically means that at the moment we have a shortage of capital, and we have an abundance of good ideas that we need to invest in,” said Torsten Slok, chief economist at Apollo.
