An analysis found that U.S. big tech corporations pouring astronomical sums into artificial intelligence (AI) have used special purpose vehicles (SPVs) to keep as much as $120 billion (about 170 trillion won) in liability from appearing on their financial statements.
Big tech has been borrowing, including by issuing large bonds, to invest in AI data centers, high-performance semiconductors, and cloud facilities, and it mobilized Wall Street investment banks and asset managers so that these costs would not be recorded as liability on financial statements. As Wall Street and big tech become intertwined through financing, there are concerns that if future demand for AI falls or the AI bubble bursts, the shock will spread beyond the tech industry to the U.S. financial sector.
The Financial Times (FT) reported on the 24th that Meta, the parent of Facebook and Instagram, Elon Musk's AI startup xAI, Oracle, and data center operator CoreWeave are using such complex financial transactions to remove AI investment-related liability from their financial statements.
When these big tech corporations create SPVs, Wall Street financial firms such as Pimco, BlackRock, Apollo, Blue Owl, and JPMorgan provide funding by purchasing stocks or bonds issued by the SPVs.
Because the funds raised this way are supplied through SPVs, they do not show up on big tech's financial statements. From big tech's standpoint, this can avoid a credit rating downgrade stemming from a surge in liability, but FT noted it could be abused to conceal AI investment risk.
If AI corporations face financial difficulties in the future, the crisis could also spread to the U.S. financial sector in unpredictable ways. A senior Wall Street executive told FT, "Unimaginable 18 months ago, it's now commonplace for tens of billions of dollars to flow into SPVs to finance data centers."
FT's own analysis shows Oracle has used this complex financial structure most aggressively. Oracle borrowed $66 billion (about 96 trillion won) in AI-related funds through SPVs. Oracle is working with construction and financial firms such as Blue Owl, Vantage, Crusoe, and Related Digital to build data centers in Texas, Wisconsin, and New Mexico. Each SPV owns the data center, and Oracle leases the facilities.
If a default occurs, investors who lent the money can exercise claims only on physical assets such as data center land, equipment, and semiconductors, and cannot hold Oracle, the facility operator, liable for repayment, FT explained.
In Oct., Meta set up an SPV called "Beignet Investor" to raise funds for the Hyperion data center it plans to build in Louisiana. The SPV secured $27 billion in loans from Pimco, BlackRock, and Apollo, and raised $3 billion in Blue Owl equity for a total of $30 billion (about 44 trillion won). Although Meta effectively borrowed $30 billion to build the data center, thanks to the transaction through the SPV, the liability was not reflected on the financial statements.
xAI also secured $20 billion (about 29 trillion won) needed to purchase Nvidia graphics processing units (GPUs) through a separate SPV, and CoreWeave borrowed $2.6 billion (about 3.7 trillion won) via an SPV to fund its contract performance with OpenAI.
FT assessed that the new forms of borrowing that emerged on the back of the AI boom are as risky as demand is growing rapidly.
According to investment bank UBS, as of early this year, funds borrowed in the big tech private credit market totaled about $450 billion (about 650 trillion won), up $100 billion from a year earlier. UBS analyzed that $125 billion has flowed this year alone into project financing, a form of long-term infrastructure financing such as data center construction.
FT reported, "Big tech's AI data center construction relies heavily on the private credit market, which has surged to about $1.7 trillion, but that market is riddled with risks such as rising asset values, illiquidity, and borrower concentration." It also warned, "For now, big tech's financial capacity and credit ratings are solid, so the burden is not large, but conditions could change at any time."
There are also concerns that if SPV liability spreads simultaneously, it could rattle financial markets. If multiple AI companies borrow through SPVs, even small market shocks could be transmitted simultaneously to private credit funds.
Another risk factor is that the current AI investment boom is led by a small number of companies, including OpenAI, the developer of ChatGPT, so weakness at an individual company could hit the entire industry. OpenAI alone has signed more than $1.4 trillion in long-term computing contracts. AI corporations, including OpenAI, also face uncertainties such as AI-related power shortages, regulatory changes, and the rapid obsolescence of AI chips, the key collateral assets.
A finance industry source familiar with data center financing transactions said, "Risky loans and potential credit risks have already piled up in the private credit market," adding, "With the added risk of defaults on AI investment–related uncertainty loans, the next few years will be very interesting and worrisome."
Not all big tech relies on SPV liability, however. FT added that Google, Microsoft (MS), and Amazon are choosing to use internal cash or borrow directly to build and expand data centers.