Who will foot the bill for the "AI capital frenzy"? In the next three years, Silicon Valley will contribute $1.4 trillion, and Wall Street will raise $1.2 trillion.

Who will foot the bill for the "AI capital frenzy"? In the next three years, Silicon Valley will contribute $1.4 trillion, and Wall Street will raise $1.2 trillion.

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The staggering computing power demands of the artificial intelligence revolution are giving rise to an equally astonishing wave of capital.

According to Morgan Stanley’s forecast this July, by 2028, global total spending on AI data centers and chips will reach a staggering $2.9 trillion. Of this, cash-rich tech giants will shoulder the largest share—about $1.4 trillion. The remaining gap is expected to be filled by debt financing, totaling $1.2 trillion, with private credit funds projected to provide $800 billion of this amount.

To meet this unprecedented funding demand, a powerful alliance is forming, composed of global banks, private credit giants, and specialized lending institutions. Not only can they swiftly write billions of dollars in checks, they are also actively exploring innovative financing structures, such as using AI chips as collateral. From a nearly $10 billion single loan provided by JPMorgan Chase for the OpenAI project to chip-collateralized financing backed by Blackstone, new deal structures are rapidly emerging.

This capital race driven by AI creates a huge opportunity for financial institutions capable of rapidly mobilizing funds and shouldering and managing risk. It tests the adaptability of traditional banks and provides a historic expansion platform for emerging forces like private credit.

Traditional Banking Giants Take the Lead, Single Deal Breaks Record

JPMorgan Chase is showing an aggressive stance in AI data center financing. When data center developer Crusoe needed a $9.4 billion loan to build a large data center complex for Oracle and OpenAI, JPMorgan Chase agreed to take on all the financing risk alone, rather than using the usual shared risk model in banking.

According to sources, the deal was arranged by the bank’s securitized products division, and some of the debt will subsequently be syndicated to other banks. This data center financing in Abilene, Texas, helped JPMorgan Chase leap from seventh to first place in IJGlobal’s latest telecom project debt underwriter rankings.

The bank also led a $38 billion loan for two additional Oracle data center projects, developed by Vantage, which could become the largest construction loan ever in the data center sector. To bolster its presence in the sector, JPMorgan Chase this month named Michael Johnson and former Citi banker Francisco Abularach to jointly head its global infrastructure client advisory and capital markets business. Johnson, who has worked in energy banking for 30 years, commented:

"We're not afraid to break the mold and try new things."

Low Rates as Key Advantage, Japanese Banks Accelerate Penetration

Thanks to Japan’s low interest rates, Japanese banks have a natural cost advantage in providing capital for large infrastructure projects, making them a force to be reckoned with in the data center financing market.

Mitsubishi UFJ Financial Group and Sumitomo Mitsui Banking Corporation are the most active. According to IJGlobal’s latest rankings, SMBC and MUFG rank second and third in telecom project deals. They have participated in multiple large transactions this year, including the aforementioned $38 billion Vantage project and a $3.1 billion construction loan for Rowan Digital Infrastructure's data center campus in Maryland.

People involved in data center deals say that compared to their US peers, Japanese banks offer lower-cost financing. SMBC, in particular, is a pioneer in this sector. According to an insider, SMBC arranged one of the first data center financings as early as 2016 for an EdgeConneX project. The bank also took the lead in encouraging credit rating agencies to rate data center deals, opening the market to more lenders. Quynh Tran, Deputy Head of Global Structured Finance at SMBC Americas, says:

"We know that as long as someone is willing to invest, the industry's tailwinds, strong contracts and high-quality offtakers will work just as well for other participants."

Private Credit’s Dual Role: Both Owner and Lender

Private equity giant Blackstone plays a dual role in the data center sector. Not only does it own major data center developers like QTS and AirTrunk, its credit and insurance divisions have become significant lenders, attracting market attention with their innovative financing structures.

Blackstone’s most eye-catching deal was leading a $7.5 billion debt financing for cloud service provider CoreWeave, with the loan collateralized by Nvidia high-performance chips held by the company. According to a list of lenders seen by The Information, Blackstone provided $4.4 billion in this largest financing of its kind.

This "chip-collateralized loan" model comes with risks, since chips have a shorter useful life than other data center assets. But the risk also brings high returns. According to CoreWeave's IPO filing, the interest rate on the debt was as high as 10.5% at the end of last year, far higher than traditional data center financing. Meanwhile, Blackstone also handles traditional, lower-risk data center loans, such as a $1 billion debt financing for Aligned Data Centers, but only if the project has signed contracts with investment-grade tenants.

Alternative Investors Enter, Providing Early-Stage Risk Capital

As the market heats up, more alternative investors are flooding in, providing critical capital for earlier-stage and higher-risk projects thanks to flexible strategies.

Pacific Investment Management Company (PIMCO) is among them. The $2.1 trillion assets under management bond giant won the mandate as lead underwriter on $26 billion of the $29 billion debt sought by Meta Platforms for its new data center in Louisiana. A person familiar with its strategy says that PIMCO is expanding from traditional fixed income into private credit, focusing on physical asset financing.

Australia’s Macquarie Bank is well known for supporting early-stage projects, using investment tools such as traditional debt, convertible notes, and preferred shares, sometimes extending funding even before developers secure tenants. In January this year, the bank agreed to provide up to $5 billion of preferred shares, with an annual dividend rate of 12.75%, to Applied Digital, which is pivoting from bitcoin mining to AI data centers. In another deal, Macquarie lent up to $250 million to data center site developer Fermi, with a "Macquarie Multiple" clause in the transaction that effectively ensures the bank a 1.5x return of principal within 12 months.

Private credit giants Blue Owl and Magnetar Capital are also worth watching. Blue Owl, which manages more than $280 billion in assets, formed a real estate credit team last year and has already invested more than $600 million in data center projects. As CoreWeave's largest pre-IPO investor, Magnetar also participated in the first chip-backed innovative loan transactions using Nvidia chips as collateral.

Risk Warning and DisclaimerThe market involves risk; investment requires caution. This article does not constitute personal investment advice and does not take account of any individual user’s special investment objectives, financial situation, or needs. Users should consider whether any views, opinions, or conclusions in this article are suitable for their particular circumstances. Investing accordingly is at your own risk. ```