Big Tech needs a staggering $1.5 trillion to fund the AI boom. This is the complex playbook it's using to get it.
Dow Jones2025.11.08 13:30
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Big Tech, including Meta, Nvidia, and Google, is seeking $1.5 trillion to fund AI advancements, turning to alternative financing methods like private credit and vendor financing. Meta's Hyperion AI supercomputer project, a $27 billion joint venture with Blue Owl Capital, exemplifies this trend. The hyperscalers are expected to generate $1.4 trillion of the estimated $2.9 trillion needed by 2028, necessitating innovative financial strategies to cover the shortfall. This shift in funding approaches reflects a broader transformation in the tech industry's relationship with Wall Street.
By Christine Ji
Inside the financial engineering of the AI build-out: Nvidia, Google and the rest of Big Tech are turning to Wall Street, vendor financing and private credit
In a rural Louisiana parish that is home to some 20,000 inhabitants, an army of bulldozers and excavators has been busy clearing a vast patch of farmland, the next frontier of the artificial-intelligence revolution. It is here where Mark Zuckerberg and Meta Platforms Inc. have chosen to build Hyperion, an AI supercomputer housed in a nine-building campus of data centers humming with the latest Nvidia semiconductor chips and equipment.
To help pay for the Manhattan-size data center, Zuckerberg has turned not to big banks like JPMorgan Chase (JPM) or Goldman Sachs (GS) that have helped finance previous American industrial expansions, but rather to the alternative-asset manager Blue Owl Capital (OWL). Funded by institutional investors such as pension funds and insurance companies instead of by customer deposits, Blue Owl's lending vehicles have boomed in recent years as regulators pushed riskier loans away from banks and toward entities not backed by U.S. government guarantees.
Hyperion will be built and owned by a $27 billion joint venture, with Blue Owl-managed funds taking an 80% stake and Meta (META) holding 20%. Blue Owl will fund a portion of its contributed capital through debt issued to Pimco and other institutional bond investors via a private securities offering. Meta will lease the facility upon its completion in 2029. It's the largest private-capital deal that's ever been done on Wall Street.
AI has the potential to completely transform the world. But first, it needs a few trillion dollars. Out of the estimated $2.9 trillion in AI capital expenditures expected by 2028, the hyperscalers building the technology - including Meta, Amazon.com Inc. (AMZN), Google parent Alphabet Inc. (GOOGL) (GOOG), Microsoft Corp. (MSFT) and Oracle Corp. (ORCL) - will only generate enough cash to cover $1.4 trillion, according to a report by Morgan Stanley strategists led by Vishwas Patkar.
To get the remaining $1.5 trillion, Big Tech companies will need to not only utilize traditional debt instruments like corporate bonds but also carry out feats of financial engineering that will fundamentally redefine their relationship with Wall Street - and pull the entire market along for the ride.
There are existing tools to fund a capital-expenditure cycle. The rise of high-yield bonds in the 1980s democratized the public debt market, allowing non-investment-grade companies to easily raise capital. In the 1990s, telecommunications companies engaged in vendor financing, lending money to their customers to help fund purchases.
But today, megacap tech names have partnered with private startups and higher-risk public companies to create a large-scale, opaque financing system that makes past strategies look rudimentary. Neoclouds that rent out graphics processing units, or GPUs, have emerged to provide fast and flexible AI computing capacity for an ecosystem where data-center inventory seems perpetually constrained. OpenAI's dealmaking spree has put the company at the center of over $1 trillion in infrastructure partnerships. Supplying the GPUs that are powering it all is chip giant Nvidia Corp. (NVDA), which has made strategic investments in its top customers.
To avoid depleting their own free cash flows - the money available to reinvest back into the business or distribute to shareholders - the hyperscalers are looking for novel ways to finance their data-center build-outs. Meta's minority stake in its Hyperion joint venture will appear as an "non-marketable equity investment" on its balance sheet, according to the company's latest quarterly filing.
That means "the debt is not consolidated on Meta's books. It sits with the special-purpose vehicle," Sean McDevitt, partner at the consulting firm Arthur D. Little, told MarketWatch. Arthur D. Little served as commercial due-diligence adviser to Meta on the Hyperion deal.
And Wall Street is eager to service these investment-grade tech behemoths, seeing them as extremely reliable streams of income.
For many of the companies in this web, AI has become an "existential" investment, Michael Green, portfolio manager and chief strategist at Simplify Asset Management, told MarketWatch. The winners could reap trillions while the losers face obsolescence.
By using borrowed money instead of cash, "you're magnifying the outcome when you win," Green said. But, he added, that comes at the cost of amplifying the downsides if you lose.
Neoclouds and vendor financing
CoreWeave, led by CEO Mike Intrator, started out as a crypto-mining company. It had its initial public offering earlier this year.
CoreWeave Inc. (CRWV), the largest neocloud company, counts Microsoft, Meta and OpenAI as its top customers. But before it was a multi-gigawatt power broker to the world's biggest tech companies, CoreWeave was a small crypto-mining company started by three commodities traders in 2017.
CoreWeave's rise from a New Jersey garage full of chips to a neocloud leader with 33 data centers across two continents wouldn't have been possible without its unique relationship with Nvidia. By 2021, CoreWeave had become Nvidia's most trusted and specialized cloud partner, giving it early access to Nvidia's latest chips. Nvidia invested $100 million in CoreWeave in 2023, when the latter was still a fledgling private company. The chip giant went on to serve as an anchor investor in CoreWeave's March 2025 initial public offering. In October, a 2023 agreement stating that Nvidia is obligated to purchase up to $6.3 billion of CoreWeave's unsold cloud capacity until 2032 was publicly disclosed in a securities filing. Nvidia currently holds a 6.6% stake in CoreWeave.
It's a symbiotic relationship: CoreWeave receives financial backing to support its capital-intensive business, and Nvidia secures an important distribution channel for its technology. CoreWeave did not respond to a request for comment.
In the last two months, a flurry of deals have further highlighted Nvidia's role at the core of the AI boom: The company has pledged to invest $100 billion in one of its top customers, OpenAI; put $2 billion in a special-purpose vehicle tied to Elon Musk's AI company xAI; and taken a $5 billion stake in chip maker Intel Corp. (INTC). For Nvidia, which recorded an impressive $72 billion of free cash flow for the 12 months ending July 27, reinvesting its cash into its customers is an effective way to drive the overall AI infrastructure build-out and, subsequently, its own sales, Ayako Yoshioka, portfolio consulting director at Wealth Enhancement, told MarketWatch.
"We do not require companies we invest in to use Nvidia technology," a Nvidia spokesperson said in a statement to MarketWatch.
"There's nothing inherently wrong with vendor financing," John Huber, founder and portfolio manager at Saber Capital Management, told MarketWatch. Customers can buy products without taking out a bank loan, and suppliers can lock down revenues and pricing power.
But these types of agreements have backfired when the demand for such purchases dries up, something that telecommunications giants such as Cisco Systems Inc. (CSCO) and Lucent Technologies experienced during the dot-com bubble, Huber pointed out. When their highly leveraged customers went bankrupt, both companies suffered severely. Cisco was forced to write off over $2 billion in inventory in 2001. Lucent was saddled with $8 billion in debt, charged with accounting fraud and eventually acquired by a French telecommunications company.
Huber cautioned, however, against drawing too many comparisons between today's AI build-out and the dot-com era. He emphasized that Nvidia, Google, Meta and Microsoft have "pristine credit" and robust free cash flows, unlike the low-quality companies that went bust during the internet bubble. But Huber added that these vendor-financing agreements could likely lead to overbuilding of AI infrastructure that eventually turns today's scarcity of data centers and computing power into a glut.
Additionally, unlike the hyperscalers, many of the companies benefiting from vendor financing don't have the revenues and free cash flows to support their levels of spending, Wealth Enhancement's Yoshioka said. CoreWeave recorded over $1 billion in net losses for the 12 months ending June 30, according to FactSet. ChatGPT creator OpenAI is a private company that recorded a $13.5 billion loss on $4.3 billion in revenue in the first half of the year, according to The Information.
Nvidia's equity investment and special purchasing agreements - such as its agreement to buy six gigawatts of Advanced Micro Devices Inc. chips in exchange for warrants to purchase 160 million of AMD's stock (AMD) - have helped OpenAI secure over $1 trillion in computing power.
A rich cosigner
Meta's Facebook data center in Eagle Mountain, Utah, shown here, is a complex of five large buildings totaling 2.4 million square feet. Meta's Hyperion data center in Richland Parish, La., will be the size of Manhattan.
Following in CoreWeave's footsteps, TeraWulf Inc. (WULF) and Cipher Mining Inc. (CIFR) were bitcoin-mining businesses that recently pivoted to building and leasing out AI data-center facilities. As it turns out, running AI workloads is a much more lucrative way to use GPUs than mining cryptocurrency.
In the last three months, both companies separately entered into 10-year agreements to host the private neocloud company Fluidstack.
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