Morgan Stanley is steering a massive wave of AI-related debt issuance, with projections of $570 billion globally in 2026. This figure already saw $236 billion issued by May, marking a growth rate nearly four times that of the previous year. Such explosive expansion is reshaping the credit markets and raising critical questions about systemic risk linked to AI infrastructure financing.
The AI Debt Boom and Its Market Dynamics
The core driver behind this trend is hyperscaler investment-grade bond issuance, which includes debt issued by major cloud and AI platform operators. Morgan Stanley expects this segment to grow between 30% and 50% from 2025’s $100 billion, reaching upwards of $150 billion in 2026. This growth highlights the intense capital demand to build and expand AI data centers and cloud infrastructure.
One landmark transaction illustrating this momentum was Morgan Stanley’s arrangement of a $3 billion debt facility for TeraWulf, an AI and data center infrastructure company with Google’s backing. TeraWulf’s roots in crypto mining before shifting to AI workloads reflects the broader technological pivot seen in the sector. also Core Scientific's expanded credit facilities contribute to the evolving debt landscape supporting AI infrastructure.
Utilities, essential for powering these energy-intensive data centers, are also receiving increased investment-grade debt attention. US utilities saw around $135 billion in issuance in 2025, with forecasts pointing to $145 billion in 2026, largely due to the energy demands of new data center capacity. This intersection between utilities and AI infrastructure financing shows the growing complexity of the sector’s capital needs.
Systemic risk emerges as a key concern amid this rapid debt expansion. A Bank of America survey from May 2026 indicates that 34% of fund managers now perceive data center debt as a potential systemic threat. The crux lies in the heavy use AI-linked issuers are taking on to finance infrastructure built on the assumption of sustained exponential growth in AI demand. Such reliance on continuous growth creates vulnerabilities, especially if market conditions shift or underwriting standards erode as issuance volumes surge later in the year.
This acceleration in debt issuance, combined with evolving underwriting rigor, could lead to a divergence in credit quality. Investors and market participants should watch for signs of loosening standards as the market approaches the projected $570 billion issuance target, which may increase credit risk within AI infrastructure financing.
Material is informational and does not constitute financial advice.
