AI spending spree by U.S. hyperscalers may obscure rising financial risks

AI SPENDING SPREE BY U.S. HYPERSCALERS MAY OBSCURE RISING FINANCIAL RISKS

Technology companies’ heavy spending to gain an edge in artificial intelligence could pose a systemic financial risk because of the aggressive structures used to obscure their true outlays and revenues, Mark Malek, chief investment officer at Siebert Financial, said.

The five largest U.S. hyperscalers — Alphabet NASDAQ:GOOG, Amazon NASDAQ:AMZN, Meta NASDAQ:META, Microsoft NASDAQ:MSFT and Oracle NYSE:ORCL — are set to spend more than $1 trillion combined on AI infrastructure in 2025 and 2026, according to a Bank for International Settlements (BIS) report.

However, that figure understates total spending because hyperscalers often do not directly build data centers or hold related debt on their balance sheets.

Instead, companies set up special purpose vehicles (SPVs) that secure financing from private credit firms such as Blackstone NYSE:BX, Apollo NYSE:APO, Blue Owl NYSE:OWL and PIMCO. The hyperscalers then lease the completed facilities.

This structure allows companies to classify the costs as operating leases while keeping the associated debt off their balance sheets. Lease-related commitments not recorded as liabilities total about $662 billion across the five companies, Malek said, citing a Moody’s analysis.

"To put that in perspective, that’s roughly 113% of those same five companies’ most recent adjusted debt, meaning the stuff hiding off the books is actually bigger than the stuff sitting on it," he says.

Malek also flagged “circular financing,” a practice highlighted by the BIS in which chipmakers and hyperscalers take equity stakes in AI labs.

Those labs, in turn, commit to multi-year purchases of chips and computing capacity, often from the same companies that invested in them.

"That’s not organic demand pulling the AI buildout forward. That’s manufactured demand, and manufactured demand has a way of flattering every metric right up until the moment it doesn’t," he says.

While these practices do not pose an immediate threat to financial stability, investors should closely monitor hyperscalers’ free cash flow relative to capital expenditure guidance on earnings calls, he added.

"The moment that guidance gets trimmed, the entire chain underneath it reprices at once, and you want to see that coming rather than reading about it after the fact," he says.