The Securities and Exchange Commission has cleared a regulatory hurdle that had constrained how data-center operators raise debt, a shift that could accelerate a wave of asset-backed securities tied to artificial intelligence infrastructure.
The agency's staff said in a letter last month that a major subset of data-center securitizations do not need to meet disclosure and risk-retention requirements that apply to more traditional asset classes.
As per reporting by Bloomberg and Reuters, the clarification arrived in response to a request from law firm Latham & Watkins, which had pressed regulators to specify how data-center-backed bonds should be treated. The SEC determined that such securities "are not asset-backed securities" in the traditional sense, since data centers are physical assets rather than instruments like auto loans or leases that amortize over time.
The distinction is more than technical for advisors and investors with exposure to alternative credit and infrastructure funds. Risk-retention rules, put in place after the 2008 financial crisis, require sponsors of many asset-backed deals to keep a portion of the debt on their own books to align their interests with investors.
Kevin Fingeret, a partner at Latham & Watkins, said complying with the rules required sponsors to take on "ownership structures that weren't necessarily in line with their ultimate objectives." according to Bloomberg.
Data-center ABS issuance has expanded rapidly, climbing to $15.5 billion in new issuance last year from $2.4 billion in 2020, and is on pace to set a new record in 2026, per data compiled by Bloomberg News. Despite the multitrillion-dollar data-center boom, the asset class remains smaller than commercial mortgage-backed securities tied to data centers, which are unaffected by the exemption since their underlying collateral is a mortgage rather than the physical facility itself.
A research note by Morgan Stanley pointed out how the surge in AI-related debt has help drive a meaningful widening in spreads across hyperscaler and data-center corporate credit.
"Data-center ABS has been notably more resilient, with spreads still near YTD tights despite the move in corporate markets," according to the analyst note by Katy Huberty, global director of research. "We expect some widening if corporate spreads remain under pressure, but believe the recent credit sell-off has been driven primarily by supply technicals rather than a deterioration in data-center fundamentals."
The regulatory shift lands as the financing infrastructure around AI computing draws in some of the largest names in asset management.
Nvidia this week announced strategic partnerships with Apollo Global Management, BlackRock, Blackstone, Brookfield Asset Management, Goldman Sachs and KKR to establish independent compute-financing platforms aimed at mobilizing more than $500 billion in third-party capital for AI infrastructure buildouts.
BlackRock chairman and chief executive Larry Fink said the AI buildout will require unprecedented investment and a skilled workforce to turn that investment into the infrastructure that will help power future growth. As reported by CNBC, the financing platforms are designed to treat compute infrastructure – and more meaningfully for Nvidia, AI chips – the way markets already treat commercial real estate or toll roads: as a bankable asset class that's able to throw off income.
“This is really the first time that technology chips have become an investable asset class,” Nvidia founder and CEO Jensen Huang told the news outlet. "These are revenue-generating assets now. They’re productive, they’re long-lived, they’re fungible, they’re flexible.”
Read more: Nvidia leads WSJ's first-ever ranking of companies best positioned for an AI-driven future
While the degree of obsolescence associated with GPUs has fed their reputation as rapidly deteriorating hardware, Nvidia's latest joint effort with the world's largest asset managers pushes back against that criticism.
"“Fundamentally, what’s different about this industry and this way of doing computing is that the computer is now part of the infrastructure, like electricity, like the internet, and so you have to think about it like it’s infrastructure,” Huang told CNBC.
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