The credit behind the compute

The massive capital required to build the infrastructure supporting next-generation artificial-intelligence applications is rapidly shifting toward sophisticated debt securities, says Fidelity Portfolio Manager Steve Rolecek, who believes the emergence of these innovative financing structures could fundamentally transform corporate credit markets while creating compelling investment opportunities.

“I believe the handful of AI financing structures that have come to market recently, which are largely absent from corporate-credit market indexes, may prove to be the first wave of a much larger transformation in how AI infrastructure is funded,” says Rolecek, who co-manages Fidelity^® Corporate Bond Fund (FCBFX) and Fidelity^® Corporate Bond ETF (FCOR) with Jay Small and Ben Tarlow.

In leading the credit-focused bond strategy, Rolecek and team concentrate on areas where they believe they can consistently add value, including security selection and opportunistic trading informed by their views across industries.

Rolecek has watched closely as AI financing has broadened beyond traditional equity and unsecured debt issuance to include sophisticated, bespoke debt structures backed by credit support from highly rated hyperscalers, increasing their appeal to a broader institutional investor base. As an example of this evolving model, he cites a recent financing arranged for the construction of a data center in Louisiana. In this case, the transaction was issued by Hut 8 – a data center developer – that leases the space to Fluidstack, an AI infrastructure provider operating compute for Anthropic, an AI frontier lab.

"To lower the cost of financing to the borrower and to increase the project's appeal to a broader set of investors, Google's parent, Alphabet, enters as a guarantor of the lease obligations,” Rolecek explains. “In turn, investors can look through to the very strong credit profile of Alphabet as a source of support should there be disruptions in the cash flows during the life the project."

He views these financings not as a gamble on speculative, early-stage startup ventures, but as project financings that are partially de-risked due to backing from hyperscalers with strong credit quality.

Looking ahead, Rolecek expects the next major financing wave to focus on the purchase of AI chips to equip completed data centers.

As a result, he anticipates substantial chip-related issuance, likely to come to market through private structures that are not eligible for inclusion in the fund’s benchmark, over the next several years as AI infrastructure continues to expand.

Seeking to capitalize on this trend, Rolecek points to Fidelity’s specialized research capabilities for evaluating increasingly complex data center and chip-financing transactions, noting that differentiation among deals will be crucial to success.

The AI race is creating more than just new technology, Rolecek concludes. “It's forming an entirely new financing ecosystem, and I believe investors are only seeing the tip of the iceberg in terms of both issuance volume and the opportunity emerging in credit markets.”

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