For professionals in leveraged finance, artificial intelligence has become the singular dominant theme, especially as corporate merger and acquisition financing demand has yet to fully recover.

Goldman Sachs Group Inc

Last week, Goldman Sachs held its 11th Annual Leveraged Finance and Credit Conference in Dana Point, California. The trillions of dollars in funding required for AI-related data center and power infrastructure development were a central focus of discussions.

Over 400 investment executives and 85 borrowers attended the event at the Waldorf Astoria Monarch Beach Resort, including companies like American Airlines Group Inc. and Caesars Entertainment Inc., as well as AI-focused firms such as Applied Digital Corp. and Cipher Mining Inc. Despite concerns over weak M&A returns, rising interest rates, and geopolitical tensions, the AI fervor has notably boosted market sentiment.

The scale of funding needed to support AI is staggering. In the US high-yield bond market alone, more than $20 billion has been raised in the past two months. Many blue-chip companies are also looking to overseas markets to secure additional financing. One of the most notable developments is that Apollo Global Management Inc. and Blackstone Inc. are attracting more investors to participate in a $36 billion deal to fund AI infrastructure for the startup Anthropic PBC. On Monday, Anthropic also stated it had confidentially submitted a draft registration for an initial public offering.

Miriam Wheeler, Global Head of Leveraged Finance at Goldman Sachs, noted in an interview that there are immense capital expenditure requirements, whether in data centers, power supply, or semiconductors, spanning nearly all the markets they operate in. For the Goldman Sachs Capital Solutions team, AI is currently the most significant topic without a doubt.

Currently, corporate bond prices for most AI infrastructure-related companies remain closely clustered. However, as market supply becomes saturated, bankers warn that a sorting mechanism is imminent. For instance, if companies fail to meet critical milestones like data center construction timelines, bond pricing will begin to diverge.

Chris Bonner, Head of Americas Leveraged Finance at Goldman Sachs, stated in an interview that the capital costs will eventually reflect the progress of companies that fall behind. He added that the funding needs of the AI ecosystem are astonishing and believes this trend will not slow in the near term.

Despite the global AI frenzy, Wall Street remains eager for a resurgence in traditional corporate M&A activity. While landmark deals, such as the acquisition of Electronic Arts Inc. and Paramount Global's planned acquisition of Warner Bros. Discovery Inc., have brought some new supply to the financing markets, overall deal volume has not yet rebounded to the levels the market hopes for.

"We all want to see more bond issuance," Bonner told attendees in his opening conference remarks.

Wheeler commented that the current debt market is quite attractive in terms of both financing scale and pricing. Although interest rate movements over the past week have introduced some uncertainty, the overall environment remains conducive to a gradual return of more transaction activity.