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(Bloomberg) — The market turmoil sparked by DeepSeek’s chatbot this past week has left some rethinking the credit frenzy around artificial intelligence.

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Corporate giants told money managers this week that the Chinese startup’s cheaper models will only spur more demand for the technology and the sprawling infrastructure it requires. While big investors such as Blackstone Inc. President Jon Gray say that “digital infrastructure remains essential,” behind the scenes landlords and credit providers say the situation is more nuanced, and some are starting to fret.

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A senior executive at one of the major data center landlords expects the firm’s borrowing costs to increase because lenders will seek to protect themselves against the risk of the properties becoming obsolete from a DeepSeek-style disruptor. Another asset manager, which both acquires and provides credit for the real estate, said their lending ambitions are now less certain after the market panic. The danger, the person said, is that AI mimics the green investing boom, when a rapid influx of money into clean energy created an oversupply of assets. Both executives asked not to be identified as they weren’t authorized to speak publicly.

“The market is still exploring the impact of the new AI models, but it could be a healthy correction,” said Timo Buijs, senior director of project and infrastructure finance at ABN AMRO Bank NV. “Even if it has an impact on demand for data centers for AI, there is still growth expected,” he added, noting it may be “just slightly lower growth.”

Building Spree

The explosion of interest in artificial intelligence since ChatGPT’s 2022 debut 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 $2 trillion opportunity in data centers and associated infrastructure over the coming five years.

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Despite DeepSeek’s emergence, Meta Platforms Inc. Chief Executive Officer Mark Zuckerberg predicted a “really big year” in AI for his firm. Khazna, a data center developer that’s part of Emirati tech conglomerate G42, told Bloomberg that DeepSeek’s emergence “further underscores the growing demand” for the facilities.

Wider credit markets have also been comparatively sanguine about this 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 and Nvidia the largest), yet bond-spread widening was limited to a narrow range of 10 bps or less,” Robert Schiffman, Bloomberg Intelligence Senior Credit Analyst, wrote on Tuesday.  

Downside Risk

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.

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If DeepSeek’s claims about its spending are accurate, the startup showed that it could train an AI model at a fraction of the amount that Meta, OpenAI and other major developers spend. However, these models still need data centers and equipment to make functional chatbots that people use or AI tools companies purchase.

During this stage, even developers like DeepSeek will need to spend heavily on chips and computing resources, said Narry Singh, an executive partner with the consultancy AlixPartners. 

“I find the idea that this is going to depress massively the demand for infrastructure tenuous at best,” he said.

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Week In Review

• A handful of blue-chip companies delayed selling corporate bonds in the US on Monday, after DeepSeek’s latest AI model sparked a $1 trillion rout in US and European technology stocks, and bonds weakened relative to benchmarks. On Thursday, companies including Oracle Corp. and NextEra Energy tapped the high-grade market after uncertainty about AI valuations showed signs of dying down and the Federal Reserve left rates unchanged Wednesday.
• Helped by Musk’s singular relationship with President Donald Trump and the tech mogul’s newfound proximity to the White House, Morgan Stanley is discovering that investors are drawn to the debt of the company now called X as it leads banks in marketing a $3 billion offering.
• China Vanke Co. has been thrown a lifeline by state authorities, a rare show of support that signals the developer may be too big to fail even after dozens of property firms defaulted amid China’s punishing housing slump.
• Investment bankers who cater to private equity firms are offering to do deals for free as a global rally drives rampant demand for leveraged loans.
• Firms led by Wells Fargo & Co. finalized a $9.4 billion junk-debt sale on Friday to help finance building materials maker Quikrete Holdings Inc.’s $11.5 billion purchase of Summit Materials Inc., after investors lined up for a chance to participate in a rare deal supporting an acquisition.
• JPMorgan Chase & Co.’s big preferred shares issue this week put sales desks into top gear. Their pitch was simple: a significant coupon jump — something that’s made the junior securities one of the hottest trades in credit.
• Dream Games, a Turkish developer of popular mobile games including Royal Match, is in talks with investors to raise around $2.5 billion in fresh debt and equity in a round that would almost double the firm’s valuation in less than three years.
• Investors are betting against high-yield corporate bond ETFs, with $10 billion in bets against them, the most since 2023.
• Money managers looking to cut their exposure to commercial real estate collateralized loan obligations have been finding buyers hard to come by in secondary markets.
• Textile company Lycra Co. entered a deal to sell itself to an undisclosed Chinese state-owned company in a transaction that would pay back all of its existing debt.
• IM3NY, which has sought to become a major US manufacturer of lithium-ion batteries, filed bankruptcy months after Australian securities regulators accused the firm’s majority owner of failing to disclose problems at a New York production facility.

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On the Move

• Blackstone Inc. hired Matt Bloom as head of credit research for its liquid credit strategies business. Bloom was previously a senior managing director and one of the co-heads of corporate credit at Guggenheim Investments Inc.
• TD Securities tapped Jason Powers from Kuvare Asset Management as head of structured credit.
• Alternative credit lender Antares Capital hired Olga Kosters to lead a credit secondaries unit. Kosters previously held a similar role at Apollo Global Management.
• Jeff Egee, Goldman Sachs Group Inc.’s head of leveraged finance trading in Europe, is set to join Silver Point Capital as head of European trading. Stephen Catera, head of capital markets at Siris Capital Group, will also join Silver Point as a managing director on the capital markets and originations team.
• Jefferies Financial Group Inc. hired Tim Kerry from Barclays Plc as co-head of EMEA leveraged finance. He will run the division with Bala Ramesh, who is also head of EMEA debt capital markets within fixed income.
• Oaktree Capital Management is boosting its asset-based finance team, adding Rana Mitra from Atalaya Capital Management, Stephanie Masters who has previously worked at Waterfall Asset Management, and Matthew Scheer from Goldman Sachs Asset Management. Meanwhile, Jennifer Marques is being promoted to head of strategy and structuring for ABF at Oaktree.
• Credit Agricole CIB has made senior appointments in its distribution and asset rotation team in London and Paris, including Sébastien Pietryk as global head of credit risk insurance and global head of secondary loan trading.

—With assistance from Tasos Vossos and Ronan Martin.

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