Barclays strategist Alexander "Alty" Altmann warned that growing evidence of AI financing difficulties has not displaced Wall Street's overwhelmingly optimistic outlook on artificial intelligence. Altmann, Barclays' global head of equities tactical strategies, described investors as being in denial on Bloomberg's Odd Lots podcast, released Thursday.
Altmann highlighted Cipher Digital's October 13 proposal to issue $850 million of convertible notes alongside an exchange of debt for shares. Cipher Digital shares dropped nearly 13% as investors worried about dilution. Altmann said financing concerns then extended to CoreWeave, an AI cloud provider that relies heavily on borrowing to construct data centers. CoreWeave co-founder Brannin McBee had discussed seeking less expensive funding from insurers to support CoreWeave's rapid expansion. CoreWeave's bond yields approached 15% in mid-October, compared with 9.675% at issuance. More expensive borrowing could reduce returns even with demand remaining strong.
Altmann said data-center bond spreads had widened for months, including spreads on financing connected to Meta Platforms. Altmann said specialized AI cloud providers, known as neoclouds, clearly face a financing problem. A preliminary Barclays investor survey found that only about 60% of respondents expected financing problems. Altmann argued that the share should have been 100% and viewed the result as evidence that Wall Street remained in denial.
Altmann warned that AI companies must seek funding in a debt market already crowded with borrowers. Barclays forecasts $1.1 trillion of net corporate bond issuance this year while interest rates remain high. Altmann agreed that increasingly selective lenders are making expansion funding less accessible and more costly for heavily indebted AI companies. Altmann said a large hyperscaler reducing planned capital spending could undermine investor confidence. However, Altmann suggested such a reduction might not occur until next year.
Altmann noted that subprime financing difficulties emerged 12 to 24 months before the 2008 financial crisis affected major banks. Altmann saw a possible parallel with AI data-center developers borrowing billions despite generating little operating cash flow. Cash-rich customers, including Alphabet and Amazon.com, continue spending. However, Altmann emphasized that the comparison was not direct.
Polymarket traders assigned a 9% probability to an AI industry downturn by December 31. The probability rose to 23% by June 30. The contract requires three major distress events within 90 days, a substantially more severe outcome than the financing difficulties Altmann described. CoreWeave and similar companies already face financing pressure before the companies' largest customers have started reducing spending.
Barclays Warns of AI Financing Challenges Amid Rising Debt Costs
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Summary
Barclays strategist Alexander 'Alty' Altmann highlighted AI + crypto news challenges as financing for AI firms tightens. Rising debt costs and investor worries over dilution are hitting firms like Cipher Digital and CoreWeave. Data-center bond spreads have widened, and 'neoclouds' struggle to secure cheap funding. Barclays expects $1.1 trillion in net corporate bond issuance this year amid high interest rates, adding pressure to leveraged AI companies. Inflation data remains a key factor in funding costs.
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