Wall Street Is in Denial: AI Financing Problems Are Already Here, Barclays Strategist Warns

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Wall Street remains overwhelmingly bullish on artificial intelligence despite mounting evidence of financing problems, Barclays PLC (NYSE:BCS) strategist Alexander “Alty” Altmann warned.

“We’re in the denial phase right now because everyone is still extremely bullish,” Altmann, Barclays’ global head of equities tactical strategies, said on Bloomberg’s Odd Lots podcast episode released Thursday.

Altmann noted that subprime financing trouble appeared 12 to 24 months before the 2008 financial crisis reached major banks.

He sees a potential parallel in AI, where data-center builders with little operating cash flow borrow billions while cash-rich customers such as Alphabet Inc. (NASDAQ:GOOG)(NASDAQ:GOOGL) and Amazon.com Inc. (NASDAQ:AMZN) keep spending.

He stressed he wasn’t making a direct comparison.

The First Cracks Are Already Appearing

Altmann pointed to Cipher Digital Inc. (NASDAQ:CIFR), which proposed $850 million in convertible notes on Oct. 13 alongside a debt-for-shares exchange. Its shares fell nearly 13% amid dilution concerns.

He said the anxiety spread to CoreWeave Inc. (NASDAQ:CRWV), an AI cloud provider that borrows heavily to build data centers.

CoreWeave co-founder Brannin McBee had also discussed tapping insurers for cheaper financing as the company sought to fund its rapid expansion.

CoreWeave’s bond yields climbed toward 15% in mid-October, up from 9.675% when issued. Higher borrowing costs could squeeze returns even if demand stays strong.

Altmann said spreads on data-center bonds, including financing tied to Meta Platforms Inc. (NASDAQ:META), had already been widening for months.

“There is evidently a financing problem within neoclouds,” he said, referring to specialized AI cloud providers.

Yet only about 60% of respondents to a preliminary Barclays investor survey expected financing problems. Altmann argued the figure should have been 100%, showing how Wall St is still in denial that AI financing is in trouble.

AI Borrowers Face a Crowded Market

Altmann warned that AI companies are competing for financing in an already crowded debt market.

Barclays expects $1.1 trillion in net corporate bond issuance this year, even as interest rates remain elevated.

“AI is not issuing debt in a vacuum,” Altmann said.

Altmann agreed that lenders are becoming more selective, making it harder and more expensive for heavily indebted AI companies to fund their expansion.

Altmann said a major hyperscaler cutting planned capital spending could finally shake investors’ confidence, although he suggested that might not happen until next year.