Data center companies face higher borrowing costs as Treasury yields climb

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Data center borrowing costs rise

Highlights

The 10-year Treasury yield has risen to 5.17%, up one percentage point in 2024, tightening borrowing conditions for AI infrastructure companies.
SoftBank raised $11.1 billion in junk bonds this week, with yields reaching 9.75% on its seven-year tranche, highlighting higher costs for non-investment-grade borrowers.
CoreWeave warned every 100-basis point rate increase could add $30 million in annual interest expense, while Oracle has issued a force majeure notice on Project Jupiter to address rising costs.

Rising yields pressure AI infrastructure financing

As reported by CNBC, borrowing conditions are tightening for companies tied to the AI buildout as the 10-year Treasury yield sits near 5.17%, up about 1 percentage point since the start of the year. That increases the return issuers must offer investors and adds pressure to a sector that JPMorgan Chase estimated in June could generate $4.1 trillion in AI-related debt issuance through 2030.

The strain is most acute for borrowers without investment grade ratings. SoftBank, a major capital provider for AI projects, raised $11.1 billion in a junk-bond sale this week, with yields as high as 9.75% for the seven-year tranche. Mark Malek, chief investment officer at Siebert Financial, says many of these companies are effectively forced to accept market pricing because they need as much capital as possible to stay competitive.

The biggest technology groups, including Amazon, Google, Meta and Microsoft, are somewhat insulated because their stronger credit profiles give them cheaper access to capital even as they commit hundreds of billions of dollars in capital spending this year, with further increases expected in 2027. Smaller neocloud and data center operators face a tougher path, and one senior private credit investor tells CNBC that such deals are likely to become harder to finance because these companies have less room to absorb higher costs.

CoreWeave has already flagged that risk in its SEC filings, saying in its latest quarterly report that every 100-basis point increase in rates could add $30 million to interest expense based on its floating-rate debt balance as of June. Oracle also comes under pressure after a Bloomberg report says the company sent a force majeure notice related to its New Mexico data center project, known as Project Jupiter, to protect itself from higher expenses, though Oracle says the project remains on schedule for its planned 2028 timeline.

The surge in the U.S. 10-year Treasury yield to multi-year highs has been lifting borrowing costs across the economy and unsettling investors. Our earlier report noted that heavier government and corporate debt issuance—especially borrowing tied to AI infrastructure buildouts—has been adding to bond supply and putting additional upward pressure on yields, with knock-on risks for equities and new-issue markets.

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