Why There’s No More Cheap Capital For AI
Inside Today’s Issue
Essay: No More Free Money
Bonds On Fire
Traders Short, Insiders Long
The Home Depot (HD) Reports Earnings
Chart Of The Day… Axon Enterprise (AXON)
Today’s Mailbag
Today is Porter’s fifth essay in a multi-part series about the enormous financial risks of the ongoing artificial intelligence (“AI”) bubble. Please see the first essay here, the second essay here, the third essay here, and the fourth essay here.
Hyperscaler free cash flow is on track to fall roughly 50% from its late-2024 peak through early 2026, and to turn negative for the first time in 2027.
That means the entire bubble will depend on credit by the end of this year.
Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), Meta (META), and Oracle (ORCL) have added roughly $350 billion of on-balance-sheet debt in five years, plus $1.1 trillion of off-balance-sheet data-center lease commitments and GPU supply deals – $1.65 trillion of hidden obligations across five names.
Morgan Stanley estimates the sector faces a $1.5 trillion external financing gap against $2.9 trillion of capex through 2028.
Where will the money come from…? Some of it will come from Nvidia’s (NVDA) new $500 billion credit fund. And even more will come from the public.
Pay attention: This is where the artificial intelligence (“AI”) buildout goes from something that will threaten tech companies to something that will threaten our entire banking system and our entire economy.
Banks, ever ready to package dodgy debt for other people to hold, have begun operation “AI bag holder.”
Outstanding data-center debt securitization issuance grew from $4 billion in 2020 to $61 billion year-to-date 2026. Barclays projects $180 billion in securitizations by year-end 2028 (!).
How will so much AI data-center debt possibly be sold to investors? By regulatory arbitrage of course! How do you make dodgy debt attractive to the financial system? By “proving” to the regulators that it’s risk-free.
On February 11, 2026, $500 million of Compass Datacenters’ $830 million asset-backed security (“ABS”) became the first data-center securitization rated AAA by Moody’s. Pricing: +120 basis points over Treasuries.
Keep in mind, Moody’s only began rating the sector in September 2025.
