UBS Strategists Warn of ‘Overheating Risk’ Around AI Investments

UBS Global Research reportedly advised investors looking at the artificial intelligence industry to keep an eye on overheating risk and the health of the asset class.

UBS strategists wrote this in a Monday (Aug. 18) note in which they said private credit lenders are becoming an important source of capital for the industry, Bloomberg reported Monday.

Private debt loaned to the technology sector increased by $100 billion over the past 12 months, reaching a total of $450 billion, while business development companies’ tech lending leapt from $80 billion to $150 billion, the UBS note said, per the report.

The demand for this capital is driven by tech companies’ spending on AI data center construction and other AI development costs, according to the report.

“This phenomenon could sustain significant growth plans for AI and other hyperscaler companies, sowing the seeds of an upside scenario and increasing overheating risk,” the UBS strategists led by Matthew Mish wrote in the note, per the report.

Microsoft said in a July 30 earnings report that its capital expenditures are projected to exceed $30 billion in the first quarter to meet the rising infrastructure needs driven by strong demand for cloud and AI.

During the fiscal year ended June 30, Microsoft opened new data centers across six continents and now has more than 400 facilities in 70 regions.

“We continue to scale our own data center capacity faster than any other competitor,” Microsoft CEO Satya Nadella said during a July 30 earnings call.

PYMNTS reported July 15 that Google, Meta, Blackstone and Coreweave are planning to collectively spend hundreds of billions of dollars to build AI data centers, as the arms race heats up to build the computing power needed by this advanced technology.

A month earlier, AWS said it would spend at least $20 billion to expand its cloud computing and AI infrastructure in Pennsylvania.

In March, xAI and Nvidia joined a $30 billion AI infrastructure project called the AI Infrastructure Fund, which is backed by BlackRock, Microsoft and Abu Dhabi AI investment group MGX. Microsoft and BlackRock launched the fund last year to raise money to construct data centers and find sources of power for those facilities.

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