The Financial Stability Board on Wednesday released a sweeping report on vulnerabilities in the private credit market, warning that AI companies now account for more than a third of all private credit deals — nearly double the 17% average over the preceding five years — and that a sharp correction could trigger sizeable losses for investors.
The warning lands at a moment when the scale of AI-related borrowing has reached levels that are testing the capacity of financial markets to absorb it.
A Wall of Debt
Morgan Stanley last week raised its forecast for hyperscaler capital expenditure to $805 billion in 2026, nearly double projected 2025 levels, with spending expected to reach $1.1 trillion by 2027. The hyperscalers driving that buildout — Amazon, Alphabet, Meta, Microsoft, and Oracle — are increasingly turning to debt markets to fund their ambitions.
The U.S. investment-grade bond market is on pace for its busiest year ever, with Wall Street forecasts reaching as high as $2.25 trillion in gross issuance for 2026. Through April, year-to-date issuance hit over $1 trillion, up 28% from a year earlier, according to SIFMA data. Much of the surge is tied directly to AI infrastructure financing, which Morgan Stanley projected could exceed $400 billion this year.
Signs of Investor Fatigue
Cracks are appearing in investor appetite. When Meta sold $25 billion in bonds on April 30 — its second jumbo offering in six months — orders peaked at $96 billion, down sharply from the $125 billion attracted by a smaller $30 billion deal in October. Nearly all tranches priced at wider spreads than the prior sale, according to Bloomberg.
Meanwhile, JPMorgan and Mitsubishi UFJ Financial Group have spent months trying to distribute a record $38 billion loan package backing Oracle-linked data centers in Texas and Wisconsin. After enlisting more than two dozen banks and investors, lenders were still working to offload the final portion as of mid-April.
Regulatory Pressure Mounts
The FSB’s report, published Wednesday, called for national regulators to strengthen oversight of private credit, citing opaque valuation practices, complex funding structures, and growing interconnections with banks and insurers. CNBC reported the board emphasized that private credit at its current size has never been tested during a severe economic downturn.
Senator Elizabeth Warren in April drew parallels between the AI debt buildup and the conditions preceding the 2008 financial crisis. A March essay in Time warned of rising “circular financing” among AI firms and the use of off-balance-sheet vehicles that obscure systemic risk.
Oracle’s trajectory illustrates the tension. The company has accumulated over $100 billion in total debt to fund its AI transformation, pushing its free cash flow deeply negative. As one LinkedIn analysis noted: “Even a hot market can struggle to digest debt this large”.
