UBS cautioned that private credit has grown beyond lending to small companies to tech giants, with debt from private lenders rising by nearly 29% or $100 billion in the last 12 months.
UBS strategists have reportedly warned that the artificial intelligence boom led by investments from private credit firms and lenders is increasing the risk of overheating in the sector.
The firm cautioned that private credit has grown beyond lending to small companies to tech giants–the technology sector’s debt from private lenders rose by nearly 29% or $100 billion in the last 12 months, according to a Bloomberg report.
The note from UBS comes after OpenAI co-founder and CEO Sam Altman reportedly warned that an AI bubble is forming. “When bubbles happen, smart people get overexcited about a kernel of truth,” Altman told reporters last week, according to a report by The Verge.
“This phenomenon could sustain significant growth plans for AI and other hyperscaler companies, sowing the seeds of an upside scenario and increasing overheating risk,” UBS said in the note, cautioning that investors need to keep an eye on the health of the assets as non-bank lenders further entrench themselves in the sector.
Earlier this month, Meta Platforms Inc. (META) reportedly tapped Pacific Investment Management Co. (PIMCO) and Blue Owl Capital to lead a $29 billion financing for its data center expansion project in rural Louisiana.
Amazon.com Inc. (AMZN) and OpenAI also have similar plans for their data center sites, according to the Bloomberg report. It added that tech giants like Microsoft Corp. (MSFT), Amazon, Alphabet Inc.’s (GOOG) (GOOGL), and Meta plan to spend $344 billion in 2025, primarily driven by AI investments.
OpenAI is not listed publicly at the moment. OpenAI investor Microsoft’s shares were down 1%. Retail sentiment on Stocktwits around both companies was in the ‘bearish’ territory.
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