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CONTRIBUTORS

Mike Borowske

Head of Global Credit Research

Peter Chodas

Research Analyst

Chris Lum

Research Analyst

AI infrastructure is quickly becoming a defining investment theme across global credit markets. The scale and duration of the buildout will require substantial financing from both public and private markets, spanning a broad range of issuers and introducing novel deal structures and new sources of risk. The fundamental backdrop remains supported by growing demand for AI compute and persistent physical supply constraints, but AI infrastructure is not a homogeneous asset class. Credit risk varies across issuers, assets, counterparties, and structures, making disciplined underwriting and a cross-asset perspective essential to identifying attractive risk-adjusted opportunities. Western Asset’s AI Cross-Sector Working Group combines expertise across industries and asset classes to enhance due diligence, compare financing structures, monitor risks, and generate actionable investment ideas.

Key Takeaways

  • AI infrastructure is emerging as one of the largest investment cycles in modern history, with public and private credit markets playing a central financing role through corporate and asset-backed issuance.
  • The physical infrastructure required to support accelerating AI demand faces numerous supply constraints, contributing to the ongoing compute-constrained environment and rising hyperscaler capital expenditures.
  • AI-related issuance is expanding rapidly as hyperscalers raise debt to fund higher spending while lease commitments, guarantees and financial backstops, and compute contracts support increased project-finance and secured issuance.
  • Underwriting project-finance and asset-backed financings varies by project and asset, but generally focuses on counterparty quality, contractual terms, construction execution, refinancing risk, collateral value, and long-term asset competitiveness.
  • Western Asset remains constructive on AI infrastructure while recognizing that sentiment-driven volatility, structural vulnerabilities, and execution risks heighten the importance of disciplined security selection and deal-specific underwriting.
  • Western Asset conducts bottom-up issuer analysis to classify AI exposure across portfolios, helping portfolio managers manage thematic concentration and enabling risk teams to assess second-order effects and conduct robust adverse-scenario analysis.

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