The market turmoil sparked by DeepSeek’s (深度求索) chatbot over the past week has left some rethinking the credit frenzy around artificial intelligence (AI).
Corporate giants told money managers last week that the Chinese start-up’s cheaper models would only spur more demand for the technology and the sprawling infrastructure it requires.
While big investors such as Blackstone Inc president Jon Gray said that “digital infrastructure remains essential,” behind-the-scenes landlords and credit providers said the situation is more nuanced, and some are starting to fret.
Photo: AFP
A senior executive at one of the major data center landlords expects the firm’s borrowing costs to increase, because lenders would seek to protect themselves against the risk of the properties becoming obsolete from a DeepSeek-style disruptor.
Another asset manager, which acquires and provides credit for the real estate, said their lending ambitions are now less certain after the market panic.
The danger is that AI mimics the green investing boom, when a rapid influx of money into clean energy created an oversupply of assets, they said.
“The market is still exploring the impact of the new AI models, but it could be a healthy correction,” ABN AMRO Bank NV project and infrastructure finance senior director Timo Buijs said.
“Even if it has an impact on demand for data centers for AI, there is still growth expected,” he added, noting it might be “just slightly lower growth.”
The explosion of interest in AI since ChatGPT’s debut in 2022 has set off a global building spree for data centers that house the servers and chips powering the tech. Private equity, real-estate firms and sovereign wealth investors have pledged enormous amounts for the facilities, making them central components of economic growth across the globe. Apollo Global Management Inc, for example, sees a more than US$2 trillion opportunity in data centers and associated infrastructure over the coming five years.
Despite DeepSeek’s emergence, Meta Platforms Inc CEO Mark Zuckerberg last week predicted a “really big year” in AI for his firm.
Khazna, a data center developer that is part of Emirati tech conglomerate G42 said DeepSeek’s emergence “further underscores the growing demand” for the facilities.
Wider credit markets have also been comparatively sanguine about last week’s turmoil, suggesting they see the issues as less of an existential risk than stock investors.
“A big difference between equity and credit valuations was highlighted, with many names losing significant market value — Broadcom Inc and Nvidia Corp the largest — yet bond-spread widening was limited to a narrow range of 10 basis points or less,” Bloomberg Intelligence senior credit analyst Robert Schiffman wrote in a note on Tuesday.
In the commercial mortgage-backed securities market, Barclays PLC strategists said the downside risk to securitized data centers is low compared with stocks.
“The biggest risk to our view is a paradigm shift around data centers, which can significantly change investor sentiment, akin to what happened with the office sector over the past few years,” they wrote in a note to clients.
If DeepSeek’s claims about its spending are accurate, the Chinese start-up showed that it could train an AI model at a fraction of the amount that Meta, OpenAI and other major developers spend. However, those models still need data centers and equipment to make functional chatbots that people use or AI tools companies purchase.
During that stage, even developers such as DeepSeek would need to spend heavily on chips and computing resources, consultants AlixPartners LLP executive partner Narry Singh said.
“I find the idea that this is going to depress massively the demand for infrastructure tenuous at best,” he said.
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