When the risk free rate creeps up, financing everything from server halls to power hookups gets pricier. With the 10-year around 5.17%, roughly a full percentage point above where it started the year, borrowers have to pay up to attract investors. That matters because JPMorgan Chase projected in June that about $4.1 trillion in AI-related borrowing could come to market through 2030 as data center operators and other AI-adjacent players scramble to expand.
The hyperscalers are still writing very large checks. This year, Amazon, Google, Meta and Microsoft have lined up hundreds of billions of dollars in capex, with further outlays anticipated in 2027. A healthy dose of those outlays is being funded through debt raises, and their investment grade ratings help keep financing costs lower than most. For everyone else, the math is getting tighter.
No panic yet, but there is a chill in the air. Shares of debt heavy neocloud player CoreWeave climbed almost 8% this week, whereas Oracle - which has turned to the bond market to fund its AI push - slid 7% for the week and is off roughly 30% year to date.
Deals are still clearing at higher prices. Japan's SoftBank raised $11.1 billion in a junk bond sale this week, including a seven year tranche yielding up to 9.75%.
Lenders are getting choosier. A senior private credit investor said neocloud financings are set to be tougher because many borrowers have less cushion for higher costs. Riley Thompson, a vice president with Mitsubishi HC Capital America, summed it up: "Instead of a roster of 50 neoclouds, there's probably 20 that the market's truly interested in."
CoreWeave has noted its exposure to interest rates in SEC documents. In the most recent quarterly report, the company said that a 100 basis point move, as of June, could increase interest expense by $30 million on its outstanding floating-rate borrowings.
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Rising costs are starting to surface in project paperwork. Oracle's shares fell after Bloomberg reported the company had issued a "force majeure" notice connected to its New Mexico data center to guard against rising costs, aiming to postpone payment on Project Jupiter if it isn't online as planned in 2028. Oracle said the project "remains on our planned schedule."
There is also a broader rethink underway. Before yields spiked this week, the CEOs of Anthropic and OpenAI were urging a deceleration in AI development after researchers warned that advanced systems might escape human control.
Local politics are heating up. Nationwide pushback against AI data centers has become a campaign flashpoint as November's midterm elections approach, with 69% of respondents in an NBC News Decision Desk Poll, powered by SurveyMonkey, opposed to having such facilities nearby.
Demand, however, is surging. Meta's Muse personal assistant app, launched earlier in September, logged more than 2.5 million downloads in its first two weeks, topping Apple's App Store ahead of ChatGPT. Evercore's Mark Mahaney told CNBC he thinks the total could hit 100 million users in six to 12 months. At the heart of the buildout, In private markets, OpenAI and Anthropic each carry valuations near $1 trillion.
Tighter credit is colliding with runaway demand, and that will shape who builds what and how fast. Andrew Giudici at KBRA said rising rates could affect future deals, but he does not see a big dent in borrower appetite. "In a normal environment, people might take a step back and pause a bit," he said.
Someone has to eat the higher costs. "Somebody will have to absorb it," said Haim Zaltzman of Latham & Watkins, adding it is easier to shoulder when demand is this strong. And locked in commitments help blunt the sting. Borrowers are keen to lock in funding despite the higher coupons, especially for transactions tied to OpenAI and Anthropic, both of whom have inked contracts years in advance. As Bernie Margulies of American Compute put it: "If you have a deal with Anthropic, will 50 basis points really stop you?"
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