AI Boom Brings Flood of Debt to Ultra-Safe Market

The artificial intelligence (AI) boom fueling US economic growth is becoming increasingly dependent on credit markets to finance massive investments, with utilities emerging as some of the biggest borrowers, Jos Saul and Garson Freitas Jr. reported for Bloomberg News.

Electric companies are projected to invest more than $1.1 trillion in power plants, substations, and other grid infrastructure over the next five years.

In the process, utilities could transform one of the safest corners of the corporate bond market into a slightly riskier one.

Companies are expected to borrow more, boosting bond supply and potentially weighing on valuations. At the same time, industry profits could face pressure as regulators attempt to limit rate increases.

Bond sales by US utilities rose 19% this year to a record $158 billion, funding surging power demand driven by the AI boom. Much more spending is expected.

Electric companies are projected to invest more than $1.1 trillion in power plants, substations, and other grid infrastructure over the next five years, according to industry group Edison Electric Institute — about 44% more than in the previous period.

Debt will play a major role in financing that expansion.

Investors are not expecting utilities to face serious financial strain, largely because electricity generation and delivery in the US is a heavily regulated industry that governs how much companies can charge customers.

Utilities typically begin major projects only after receiving regulatory approval to recover costs from customers while earning an approved rate of return.