A symbolic incident occurred this week. At the annual conference for securitization bankers and investors in Las Vegas, a fire broke out in the exhibition hall on Monday evening, forcing an interruption of the event. Securitization, the core of this niche field, involves issuing debt backed by mortgages and other cash flows. The fire served as a physical manifestation of the data center financial risks worrying attendees.
The conference resumed after the fire, though many had to relocate to different halls. Numerous veterans with decades of experience, who lived through the pre-2008 financial crisis era—a period chronicled by Michael Lewis in "The Big Short"—were present. These seasoned professionals, determined to avoid a repeat of history, are scrutinizing data center-related transactions more closely to ensure all risks are accounted for.
Their questions include: Under what circumstances can data center tenants, primarily cloud service providers, unilaterally terminate contracts? Where is the demand from AI actually originating? The rapid expansion of the data center debt securitization market is compelling even the most risk-averse investors, such as insurance companies, to pay attention. A report from Bank of America, released just before the conference, projected that securitization of digital infrastructure assets—including data centers, fiber optics, and cell towers—will grow by 50% this year to reach $60 billion.
The yields on data center securitization products are typically higher than those on debt backed by contracts like residential mortgages, a key factor driving market enthusiasm. As with any new, fast-growing investment area, there is a pervasive fear of missing out if one fails to find a way to participate.
Bankers are exploring which other assets within the AI data center supply chain can be securitized and sold. They are in discussions with companies and rating agencies about issuing debt backed by AI chips and generators powering large computing facilities. They believe that if rating agencies can develop methods to evaluate such deals, it would significantly broaden the investor base amid surging AI financing needs.
However, concerns persist: this could spread associated risks to a wider pool of ordinary savers, warranting industry caution. Signs are emerging that investor capacity to purchase data center debt may be nearing its limit. Aashh Parekh, a portfolio manager at Nuveen, which manages $1.4 trillion in assets, issued a stark warning during a packed data center panel on Monday: "If you just keep buying, this asset class could end up being your entire portfolio."
**Ellisons Move Closer to Acquiring Warner Bros. Discovery**
Larry Ellison and his son David are one step closer to winning the battle for Warner Bros. Discovery (WBD). The board of the iconic but struggling entertainment giant stated on Tuesday that a revised offer from Ellison-controlled Paramount Skydance is "reasonably likely to be superior" to an offer from Netflix (NFLX). Nothing is final yet: WBD said it will continue talks with Paramount before making a definitive decision, after which Netflix will have four days to respond.
This marks the first time since the bidding began last autumn that Paramount has taken the lead. For context: in early December, WBD agreed to sell its Max streaming business and Warner Bros. film studio to Netflix for $72 billion. Paramount had previously made several offers to acquire all of WBD's assets, including its declining cable TV channels, with a final bid valuing the company at $108 billion, including assumed debt.
The WBD board had rejected that offer for various reasons, primarily citing uncertainty over Paramount's financing capability. Paramount has since resolved its financing and slightly increased its bid. Meanwhile, significant doubts exist about Netflix's ability to gain antitrust approval. The Ellisons have close ties to former President Donald Trump, who appears dissatisfied with Netflix.
The major question is how Netflix would respond if WBD chooses Paramount. Netflix's acquisition plan, which involves taking on up to $50 billion in debt, is unpopular with its shareholders. As of Monday, Netflix's stock had plummeted 39% since last October, when its executives seemed to deny bidding rumors. However, on Tuesday, its shares rose 2.7%.
The wisest course for Netflix might be to withdraw from the bidding. Yet, the allure of owning an iconic film studio appears to be a powerful temptation for the former industry disruptor that is now a de facto Hollywood heavyweight. — Martin Peers
**Other News**
* Meta and AMD announced a chip supply agreement on Tuesday. Meta will purchase enough AMD AI chips over the coming years to power 6 gigawatts of data center capacity. In exchange, upon full delivery, Meta will receive a 10% equity stake in AMD, currently valued at approximately $34 billion. * Stripe is considering an acquisition of PayPal, according to Bloomberg. The payments technology company is evaluating a full or partial purchase of its struggling rival. * A federal judge in California dismissed a lawsuit filed by Elon Musk's xAI against OpenAI. The suit alleged that OpenAI stole trade secrets by poaching employees. * Intuit, the developer of TurboTax and QuickBooks, announced a partnership with Anthropic on Tuesday. The collaboration will introduce customized AI agents for businesses and consumers within Intuit's services starting this spring. * Adept co-founder David Luan announced his departure from Amazon on Tuesday. Luan, who joined Amazon less than two years ago as Vice President of the Autonomous Vehicles and AGI lab in San Francisco, is leaving. He joined Amazon in 2024 when the company licensed technology from Adept and hired some of its staff. * The U.S. Department of Defense is pressuring Anthropic, according to sources. Secretary of War Pete Hegseth reportedly threatened on Tuesday to invoke the Defense Production Act if Anthropic does not voluntarily agree by Friday to allow the Pentagon to use its AI models for "any lawful purpose." The meeting was attended by Hegseth and Anthropic CEO Dario Amodei.