Pimco and Apollo warn AI spending could face a downturn

In short: Major money managers say the rush to fund AI projects is growing, but they also warn a downturn could make parts of the market break.

What's going on

Leaders at large investment firms are sending mixed signals about today’s AI boom. At a financial conference in Hong Kong, Emmanuel Roman, the CEO of Pimco, said there will likely be a downturn in the AI market and that “things are going to break.” Pimco is best known for bonds, which are basically IOUs companies sell to borrow money.

The warning comes as tech companies raise huge amounts of debt to pay for AI infrastructure. That includes data centers and AI chips (special computer parts used to run AI). Bloomberg reported that Meta drew about $58 billion in orders for a bond sale expected to be $15 billion to $20 billion. Other recent bond plans mentioned in the reporting include Oracle seeking another $20 billion, Alphabet selling about €6 billion, and Microsoft selling $25 billion.

Roman has estimated the AI buildout could need $2 trillion in financing over the next five years. For comparison, he said the total US bond market is about $12 trillion. Pimco has also been deeply involved in financing AI-related deals, including early financing tied to CoreWeave and purchases of large bond packages.

Apollo Global Management is also urging caution. Apollo president Jim Zelter said demand for computing power will likely rise, but the industry still does not know how AI pricing and profits will shake out.

What to watch

Investors will be watching for triggers that could cool this borrowing spree, like higher US interest rates, war, or economic stress in Europe. If borrowing gets harder or AI projects fail to pay off, it could look like a party that suddenly runs out of money for drinks (easy funding dries up fast).

Source: The Verge AI