Data center debt repricing reflects a maturing AI market, not a collapse

Published by CNBC

Ranesh Ramanathan joined CNBC’s Squawk Box Europe to discuss the selloff in data center debt, why private markets are taking a longer view of AI infrastructure and where creative capital is heading next.

Ramanathan, who leads DLA Piper’s capital solutions practice, described the recent turbulence in the public bond markets as an overreaction to the sector’s rapid early growth. “The initial exuberance…resulted in very low-cost debt being put out there,” he said. “That’s being repriced today to accurately take into account the risk of the asset class. As we always see with corrections, it’s an overcorrection.”

He noted that the bond market is only part of the picture. “As many bonds as have been put out there, there’s been a lot more private capital deployed in this space, whether in the form of private equity, private debt or infrastructure financing,” he said. That capital is taking a longer-term view, treating data centers as infrastructure rather than a short-term trade. “I think we’re seeing it evolve to where it should be, infrastructure-type financing, because these are long-lived assets that are going to generate steady revenue over a long period.”

As that model matures, the outsized returns are moving elsewhere. “If you look at where creative capital is moving, it’s actually into the power space,” Ramanathan said. With municipalities concerned about data centers’ demands on the grid, many operators are building dedicated on-site power plants, creating a real opportunity for investors.

“Power is power is power. You always need power,” he concluded.

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