Big Tech companies are deploying off-balance-sheet bond issuance to fund AI infrastructure construction, according to a May 13 report by Columbia Business School professor Steen van Nieuwerburgh. The financing approach allows hyperscalers to raise capital for data centers and power grids without recording these liabilities on their balance sheets, a practice that van Nieuwerburgh warns is "reshaping the structure of private capital markets including bond markets." The shift stems from AI infrastructure capital requirements that van Nieuwerburgh describes as "expanding to the largest scale in history, surpassing past booms in railroads, electrification, and telecommunications networks." Morgan Stanley estimates total funding needs at $2.9 trillion, with over half expected to come from bond financing (including direct issuance and off-balance-sheet bonds) between 2025 and 2028. The financing methods have raised concerns about financial stability risks as actual leverage ratios in individual infrastructure projects can reach 70-80% or higher, far exceeding the reported corporate debt levels.
Morgan Stanley Estimates $2.9 Trillion AI Infrastructure Funding Need Through 2028
Morgan Stanley projects that meeting hyperscalers' additional computing demand requires total funding of $2.9 trillion, with over half to be raised through bond financing from 2025 to 2028. The investment bank estimates the equity-to-debt ratio for total investment at approximately 60:40. Van Nieuwerburgh notes that hyperscalers have begun raising bond funding, making massive data center assets a new asset class for bond investors.
Hyperscalers Adopt Asset-Light Model Through SPV Lease Agreements
Hyperscalers are transitioning to an "asset-light" model by leveraging their investment-grade credit ratings to sign long-term lease agreements with special purpose vehicles (SPVs), while delegating actual building ownership and financing to external capital, according to van Nieuwerburgh. This structure allows companies to fund portions of AI infrastructure construction through off-balance-sheet bond financing rather than conventional bond issuance. The approach separates ownership, control, and risk-bearing in ways that van Nieuwerburgh describes as creating "forms of regulatory and financial arbitrage."
Project-Level Leverage Reaches 70-80% Despite Corporate Debt Ratios
The 60:40 equity-to-debt ratio may be understated, van Nieuwerburgh warns. He explains that "when hyperscalers directly raise infrastructure funding through unsecured corporate bonds, yet SPVs with long-term lease agreements issue off-balance-sheet bonds secured by infrastructure assets, the project's leverage can rise to 70-80%." Financial institutions willingly provide high loan limits (high leverage) reaching 70-80% of asset value for SPV infrastructure construction projects like data centers, viewing them as safe real estate or infrastructure projects. While overall AI infrastructure investment may show a 60:40 equity-to-debt ratio, the actual leverage for isolated projects such as data center buildings and power grids can reach 70-80%.
Meta Hyperion Data Center Issued $27 Billion Bonds in October 2025
Meta's Hyperion data center funding project represents one of the largest single data center development projects with total investment reaching $30 billion. Meta was initially the sole owner but later sold an 80% stake to private equity firm Blue Owl for approximately $2.5 billion. The resulting joint venture Bayonet issued $27 billion in bonds in October 2025 to raise external debt financing, marking the largest single structured project finance debt issuance in U.S. history. The capital structure reached approximately 90% debt ratio, as debt of $27 billion compared to asset value of $30 billion. Meta did not record this risk on its balance sheet under GAAP accounting standards despite the 90% actual leverage. Van Nieuwerburgh calls the Hyperion-Meta transaction "a groundbreaking deal that could become a model for next-generation data center financing," demonstrating "how the separation of ownership, control, and risk-bearing creates forms of regulatory and financial arbitrage."
Moody's Reports $660 Billion Off-Balance-Sheet Lease Commitments
Hyperscalers hold approximately $970 billion in lease commitments, with an estimated $660 billion not reflected in financial statements, according to Moody's. Companies can avoid substantial capital expenditures and debt risks that could burden credit ratings and equity value by raising project funds outside financial statements. Van Nieuwerburgh notes that Meta is valued like a high-growth software company rather than a capital-intensive infrastructure provider, thereby commanding higher valuation multiples in the stock market. He warns that "this structure increases leverage at the asset level and disperses risk to a broad range of investors, raising questions about how to measure and monitor risk within the system." Van Nieuwerburgh adds that "historical experience with large-scale infrastructure expansion suggests that when market-wide expectations change during periods of capital-intensive rapid growth, it can lead to financially significant consequences."
FAQ
What financing method are Big Tech companies using for AI infrastructure according to the May 13 report?
Big Tech companies are using off-balance-sheet bond issuance through special purpose vehicles (SPVs) to fund AI infrastructure construction, according to Columbia Business School professor Steen van Nieuwerburgh's May 13 report. Hyperscalers sign long-term lease agreements with SPVs while delegating actual building ownership and financing to external capital, allowing them to raise funds without recording liabilities on their balance sheets.
How much did Meta's Bayonet joint venture raise through bond issuance in October 2025?
Meta's Bayonet joint venture issued $27 billion in bonds in October 2025, marking the largest single structured project finance debt issuance in U.S. history. The Hyperion data center project had total investment of $30 billion, resulting in a debt ratio of approximately 90%, though Meta did not record this risk on its balance sheet under GAAP accounting standards.
What is the estimated scale of hyperscalers' off-balance-sheet lease commitments according to Moody's?
Hyperscalers hold approximately $970 billion in lease commitments, with an estimated $660 billion not reflected in financial statements, according to Moody's data cited in the report.
