Private Credit Fuels AI Boom, Raising Overheating Concerns

The Rise of Private Credit in AI Financing

The artificial intelligence (AI) sector is experiencing a significant influx of capital from an unexpected source: private credit lenders. UBS Global Research has raised concerns about this trend, warning of a potential overheating in the AI market. According to recent estimates, private debt loaned to the technology sector has reached approximately $450 billion in early 2025, marking a substantial increase of $100 billion from the previous year 12.

Shifting Landscape of Tech Financing

Private credit, once primarily focused on lending to smaller, heavily indebted companies, has evolved to become an attractive financing option for large-scale tech firms. This shift is particularly evident in the realm of business development companies (BDCs), which specialize in direct corporate loans. The tech lending portfolio of BDCs has nearly doubled, surging from $80 billion to $150 billion 12.

Driving Forces Behind the Trend

The increasing demand for private credit in the tech sector is largely attributed to the substantial capital requirements of AI development. Tech companies are allocating significant resources to construct AI data centers and fund other AI-related initiatives. This surge in spending is exemplified by industry giants like Microsoft, which projected its capital expenditures to exceed $30 billion in the first quarter of its fiscal year to meet the rising infrastructure needs driven by cloud and AI demand 2.

Source: PYMNTS

UBS Strategists' Warning

UBS strategists, led by Matthew Mish, have expressed concerns about the potential risks associated with this rapid growth in AI investments. They noted, "This phenomenon could sustain significant growth plans for AI and other hyperscaler companies, sowing the seeds of an upside scenario and increasing overheating risk" 2. This statement underscores the delicate balance between fostering innovation and maintaining financial stability in the fast-paced AI sector.

Microsoft's AI Infrastructure Expansion

Source: Bloomberg Business

Microsoft's recent financial reports provide a concrete example of the scale of investments being made in AI infrastructure. During the fiscal year ending June 30, the tech giant opened new data centers across six continents, expanding its global presence to more than 400 facilities in 70 regions 2. This aggressive expansion highlights the intense competition and rapid development occurring in the AI space.

Implications for the AI Industry

The influx of private credit into the AI sector has both positive and potentially concerning implications. While it provides tech companies with the necessary capital to fuel innovation and expansion, it also raises questions about the sustainability of this growth and the potential for market instability. As private lenders become increasingly intertwined with AI development, regulators and industry observers will likely scrutinize this trend more closely in the coming months.