There were two key events this week in our ongoing AI capex wave. I will highlight both of them, at different ends of the market, because they are "unlocking" moments.
First, however, let's put the ongoing spending wave in a credit expansion context, using Hyman Minsky’s Financial Instability Hypothesis. He described how periods of economic stability sow the seeds of future instability through leverage and risk-taking. Minsky divided financing behavior into three regimes:
- Hedge finance, where borrowers can meet all debt obligations from cash flow.
- Speculative finance, where they can service interest but must roll over principal, and
- Ponzi finance, where repayment depends on ever-rising asset prices or new borrowing.
Over time, Minsky argued, as stability breeds complacency, economies drift from hedge toward Ponzi finance, creating a self-reinforcing boom driven by optimism and easy credit. Eventually, a shock—often minor—exposes cash-flow shortfalls, forcing asset sales and deleveraging. This abrupt reversal, the “Minsky moment,” as Paul McCulley coined it in 1998. famously triggers a cascade of defaults and falling asset prices, turning stability into crisis.
Where are we in that cycle today with respect to data center financing? After all, the sums keep spiraling, with every year seeing regular revisions higher. Consider this: as the following figure shows, 2026 capex forecasts for the top 4 hyperscalers alone grew almost 50% during the year. That is ... remarkable.
An important point to note here is that, leaving aside what's happening in high yield data center debt, which I will talk about below, investment-grade data center debt is already the largest "segment" of the investment-grade market. I owe a JPM report this week for pointing that out, even if JPM's credit analysts came to sanguine conclusions about the implications.
Let's now turn to those two aforementioned events this week:
- TeraWulf's junk bond issuance
- Meta and Blue Owl's SPV
1. TeraWulf's Junk Bond Issuance
What Happened
- TeraWulf is offering $3.2B in senior secured notes due 2030 to fund expansion of its Lake Mariner data center. (Source)
- This is its first major foray into junk bonds, backed in large part via collateral and “Google backstop” arrangements (Google pledging warrants, lease guarantees) to shore up investor confidence. (Source)
- Credit rating agencies have rated the debt as junk (Ba2 / BB). (Source)
- It was well over-subscribed, with order interest reportedly exceeding $10B.
What It Means
- We’re now seeing elevated leverage and speculative financing in AI infrastructure.
- The presence of a Google “backstop” suggests non-hyperscaler deals are beginning to require implicit guarantees to attract capital.
- Demand is strong, but yield spreads remain elevated.
- The structure resembles speculative finance dynamics.