Companies driving artificial intelligence growth are turning to private credit markets to fund the enormous infrastructure investments required to remain competitive. The head of BlackRock Investment Institute highlighted that hyperscalers—large cloud service providers powering AI—will need to “leverage up” by tapping various capital sources, including private credit, to sustain this rapid build-out.

This trend is underscored by projections showing the six biggest U.S. hyperscalers plan to spend nearly $820 billion on capital expenditures this year, marking a substantial increase atop last year’s record high. Their increasing dependence on private credit reflects limitations in traditional public debt markets to fully meet their funding demands.

Private credit’s role in AI financing goes beyond direct loans to technology companies. Many hyperscalers utilize off-balance-sheet arrangements in partnership with private credit firms. These structures channel funds from nonbank investors such as private credit funds and insurers, linking the tech giants more closely with alternative lenders.

However, this growing connection raises concerns for banks and regulators. Economists at the Bank for International Settlements pointed out that banks often support private credit vehicles through funding lines, potentially exposing the financial system to new risks. Such arrangements might amplify shocks due to refinancing pressures, shifting credit appetite, or the activation of guarantees within the private credit sector.

Institutional investors have increasingly funneled billions into private credit, attracted by its steady returns amid declining participation from smaller retail investors. This influx of capital into the private credit space coincides with the AI industry’s scramble to build data centers and related infrastructure necessary to power advanced AI models.

As hyperscalers continue to expand their AI capabilities, private credit is positioned to play a more prominent role in facilitating the massive investments required. The evolving financing landscape underscores the growing interplay between technology firms, private credit markets, and traditional banking institutions in supporting the AI boom.