Blackstone says AI buildout needs more equity as debt risks rise

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Blackstone on AI financing risks

Highlights

Blackstone President Jon Gray says AI infrastructure requires more equity financing as debt investor concentration risks rise and capital needs accelerate.
AI-related capital spending could reach $10 trillion over five years according to Pimco and General Atlantic, already driving $550 billion in AI debt issues in 2024.
Goldman Sachs estimates $8.5 trillion needed for global data centers by 2029, with Blackstone seeing AI spending up 20-fold but facing site, chip, and capital constraints.

Financing strains emerge in AI infrastructure

As reported by CNBC, Blackstone President Jon Gray says AI infrastructure investment will require more equity financing because debt investors face growing concentration risks as capital needs accelerate. Speaking at the Hong Kong Monetary Authority’s Global Financial Leaders’ Investment Summit, Gray says lenders have limited upside because their returns are largely confined to interest and principal repayments, unlike shareholders who can benefit more directly from corporate growth.

Gray says the sector will need a mix of public markets, banks and private capital to finance the buildout, with companies increasingly turning to structured transactions to limit how much debt they take on. He adds that cash generated by hyperscalers will also fund part of the spending, and says financing approaches must adapt because the scale of required capital is enormous.

Pimco CEO Emmanuel Roman also warns that the size of AI financing could prove too much for markets to absorb. Roman says AI-related capital spending could reach about $10 trillion over the next five years, citing General Atlantic CEO Bill Ford’s estimate, and adds that roughly $550 billion in AI debt has been issued in various forms so far this year.

Demand outlook keeps pressure on capital markets

Even with a combination of equity and debt financing, Roman says the sums involved remain gigantic when compared with a global corporate bond market of roughly $20 trillion. Goldman Sachs writes in a report on Monday that global data center demand will require about $8.5 trillion in capital spending over the next five years.

Despite the financing challenges, Gray remains bullish on AI infrastructure, saying demand for computing power is running well ahead of supply. He says spending on AI models across Blackstone portfolio companies has risen 20-fold over the past year as businesses find financial benefits in coding, customer engagement and content creation.

Gray says meeting that demand remains difficult because securing sites, permits, chips, power and capital is becoming more challenging. Those constraints suggest that while investor appetite for AI remains strong, the sector’s expansion is likely to depend increasingly on equity backing and more complex funding arrangements.

In our earlier article on rising costs and delays in U.S. AI data center projects, we examined how higher interest rates, inflation and construction overruns are making it harder to fund new capacity. We also noted that power constraints and local opposition are adding further hurdles, raising doubts about how quickly developers can deliver projects without eroding investor confidence.

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