Citi Says Investors Growing More Selective on Data Center Bonds

Citigroup Inc. analysts reported that bond investors are becoming more selective regarding financing deals associated with the expansion of artificial intelligence infrastructure. This heightened scrutiny is particularly evident in the data center sector, where the demand for power and cooling is escalating due to AI workloads. Investors are now conducting more thorough due diligence on the financial health and long-term viability of companies seeking to fund these large-scale projects. The increased caution stems from concerns about the rapid pace of technological change in AI, which could potentially render existing data center designs obsolete or less efficient over time. Furthermore, the substantial capital investment required for data center construction, coupled with the ongoing operational costs, is prompting a more risk-averse approach from lenders and bondholders. Citigroup's analysis suggests a shift towards demanding clearer revenue projections and more robust collateral from data center developers seeking to tap the bond market for AI-related expansion.