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One of the world’s largest investment banks is exploring how to hedge against its exposure to the data center market.
Deutsche Bank executives have discussed methods to manage billions of dollars in debt on its balance sheet that are tied to the data center industry, the Financial Times reported, citing sources familiar with the talks.
Strategies discussed included shorting a collection of artificial intelligence-related stocks or using derivatives such as a synthetic risk transfer, according to the report.
Deutsche Bank’s exposure to the sector is centered on businesses that service hyperscalers like Alphabet, Microsoft and Amazon, with debt secured by long-term contracts, according to the FT. The bank recently lent to data center companies EcoDataCenter and 5C, which together raised more than $1B for expansions.
Experts have increasingly sounded the alarm about the threat of an investment bubble in data centers and the AI craze, with some likening the current environment to the mania that led to the dot-com bubble and subsequent crash, WebProNews reported.
In September, Bain & Co. warned that the AI sector will need to generate $2T in annual revenue by 2030 to keep up with the infrastructure demand for computing power. Bain estimated that the industry faces an $800B shortfall.
Deutsche Bank’s own analysts said that without spending on AI infrastructure, the U.S. would be in a recession.
“Growth is not coming from AI itself but from building the factories to generate AI capacity,” Deutsche Bank Head of FX Research George Saravelos said in a September note to investors. “In order for the tech cycle to continue contributing to GDP growth, capital investment needs to remain parabolic. This is highly unlikely.”
Data center spending cooled in September, with starts of new facilities totaling $202M, a fraction of the $14B in starts in July and the $5.5B in August starts. September's totals represent the weakest month for data center starts in more than a year, ConstructConnect reported.
However, the $32.9B in spending through September on data center starts still represents a 93% increase compared to the same time in 2024, according to ConstructConnect.
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