Microsoft Corp. is enlisting non-tech partners to accelerate financing for the burgeoning AI infrastructure boom.
Microsoft has partnered with BlackRock Inc.'s Global Infrastructure Management LLC and Abu Dhabi's MGX to establish a $30 billion fund, the Global AI Infrastructure Investment Partnership, dedicated to AI infrastructure. This initiative seeks to attract investments from asset owners, corporate investors and others, with an anticipated total investment of $100 billion including debt issuance. NVIDIA Corp. will lend its technical expertise in developing AI data centers.
Engaging financial partners in the AI infrastructure buildout will enable Microsoft to share risk, accelerate development and alleviate some pressure on its balance sheet.
The emergence of generative AI has kicked off a capital expenditure cycle, with large-scale cloud providers Meta Platforms Inc., Alphabet Inc., Amazon.com Inc., Microsoft and Oracle Corp. leading the charge. According to estimates from S&P Global Market Intelligence, these five hyperscalers are projected to account for more than $1 trillion in capex from 2024 to 2027, spending primarily on AI infrastructure.
Capital spending has been a trending topic on hyperscalers' earnings calls. According to S&P Global Market Intelligence analysis of earnings transcripts, mentions of words related to capex hit a record in the second quarter of 2024.
Demand for computing power is driven by customers eager to experiment with new technology. To meet demand, hyperscalers are aiming to build increasingly larger GPU clusters as they seek to boost the performance of generative AI foundation models.
While some of the buildout is funded by the companies' robust cash flows, there are growing indications of increased reliance on debt markets. AI-related debt issuances surged in the second quarter, and the third quarter is expected to match or exceed those levels. With the US Federal Reserve initiating a rate-cutting cycle, it is likely that debt will become cheaper, paving the way for even more AI-related debt issuances.
Among the notable debt issuances in the AI ecosystem this year, Meta stands out with a $10.5 billion bond, marking its largest-ever issuance and the biggest in the AI sector this year. Additionally, CoreWeave Inc., a cloud provider specializing in AI workloads, secured $7.5 billion in venture debt to support its AI infrastructure expansion in anticipation of delivering NVIDIA’s latest Blackwell chips amid booming demand for its services.
