"Meta, Microsoft, Amazon and others are spending tens of billions of dollars to build or lease hyperscale data centres that may define the next phase of computing. In fact, it most likely will. But this exponential, debt-funded capex also has the hallmarks of a late-cycle surge in spending that can trigger multiple re-ratings and credit stress.
History rarely rewards lenders who finance capital-intensive growth booms at their peak. In the late 1990s, telecom companies borrowed heavily to lay fibre-optic cables, confident that data demand would ensure adequate returns. Although the infrastructure transformed the economy, it generated little return on investment for years.
In the mid-2000s, wildcatters levered up to chase $100 oil. The shale revolution reshaped US energy production, yet the companies behind the build-out still endured long periods of weak returns and balance-sheet pressure. Both episodes ended the same way: overcapacity, writedowns and years of debt overhang, despite laying the groundwork for genuine economic change."
"Meta, Microsoft, Amazon and others are spending tens of billions of dollars to build or lease hyperscale data centres that may define the next phase of computing. In fact, it most likely will. But this exponential, debt-funded capex also has the hallmarks of a late-cycle surge in spending that can trigger multiple re-ratings and credit stress.
History rarely rewards lenders who finance capital-intensive growth booms at their peak. In the late 1990s, telecom companies borrowed heavily to lay fibre-optic cables, confident that data demand would ensure adequate returns. Although the infrastructure transformed the economy, it generated little return on investment for years.
In the mid-2000s, wildcatters levered up to chase $100 oil. The shale revolution reshaped US energy production, yet the companies behind the build-out still endured long periods of weak returns and balance-sheet pressure. Both episodes ended the same way: overcapacity, writedowns and years of debt overhang, despite laying the groundwork for genuine economic change."