Blackstone President Jon Gray stated on Tuesday that as lending institutions continue to increase their exposure to the companies driving this round of construction, more equity financing will be required for the construction of artificial intelligence infrastructure.
Gray stated at the Hong Kong Monetary Authority's Global Financial Leaders Investment Summit that the capital scale required by AI is posing a concentration risk to debt investors, a risk that is evident both at the industry level and at the level of individual companies.
He said that, unlike shareholders, lending institutions have limited room for improvement, as their returns are mainly limited to interest and principal repayment.
"To meet these huge demands, this sector will require more equity funding." Jon Gray, President and Chief Operating Officer of Blackstone Corporation
In the same discussion, Pimco CEO Emmanuel Roman warned investors that the scale of AI's financing might be "too large" for the market.
Roman indicates that, according to the estimates of Bill Ford, the CEO of General Atlantic, related capital expenditures for AI may reach approximately $10 trillion in the next five years. He added that as of this year, AI debt has been issued in various forms for about $550 billion.
Roman said that even with a combination of equity and debt financing, the amount of capital required would still be "huge," and made a comparison with the global corporate bond market, which is approximately $20 trillion in size.
“At some point, that will be too much,” he said.
Goldman Sachs wrote in a report on Monday that global data center demand will require approximately $8.5 trillion in capital expenditures over the next five years.
Gray indicates that for this round of construction financing, a combination of public markets, banks, and private capital will be required, while enterprises are increasingly turning to structured transactions in order to limit the scale of debt they undertake. He also mentioned that the cash flows generated by ultra-large cloud service providers will also provide funding for some of these expenditures.
"The reason for the need for creative solutions is that the scale of capital is simply too large," said Gray.
Despite the challenges in financing, Gray remains optimistic about the infrastructure of AI, stating that the demand for computing power "far exceeds supply".
He said that within Blackstone's investment portfolio companies, expenditures related to the AI model have increased by 20 times in the past year, as businesses have seen the financial benefits brought by its applications in coding, customer interaction, and content creation.
However, meeting this requirement remains difficult, as obtaining venues, permits, chips, power, and capital has become more challenging, Gray indicates.
