Artificial intelligence is driving a vast expansion in borrowing, chips, data centres and power infrastructure, but Allianz Global Investors warns that bottlenecks, valuations and the risk of oversupply could determine which parts of the trade deliver lasting returns.
Artificial intelligence is becoming one of the biggest macro bets in markets, but the real question is no longer whether the technology will work. It is whether the eventual returns will be large enough to justify the scale of the spending now being poured into chips, power, data centres and other infrastructure, as Allianz Global Investors argues in its assessment of the AI trade. The firm says investors are increasingly being forced to look beyond the headline enthusiasm and judge where the economics of the build-out still look durable, and where valuations may already assume too much.
That tension is especially visible in credit markets. Allianz Global Investors says artificial intelligence is already reshaping corporate balance sheets, with investment-grade borrowing expected to play a central role in funding the next phase of development. In one outlook, the firm estimates that about $1.5tn could be raised through bond issuance over the next five years, underscoring how heavily the sector now depends on debt as well as equity. It also argues that the largest cloud and computing groups, often called hyperscalers, remain high-quality borrowers because of their strong balance sheets and diverse revenue streams.
Even so, the AI opportunity is not evenly distributed. Allianz Global Investors says a useful way to analyse the sector is through a five-layer framework covering applications, models, infrastructure, chips and energy. That approach is meant to help investors identify where pricing power is strongest, where bottlenecks are likely to emerge and where profits may eventually concentrate. The firm says leading indicators such as adoption rates and the pace of infrastructure construction may reveal turning points before they appear in company earnings.
Data centres sit at the centre of that investment case, and they also highlight the practical constraints that could slow the boom. Allianz Global Investors says the near-term demand for high-quality capacity remains compelling, particularly where projects are contracted and backed by diversified investment-grade operators with visible cash flows. At the same time, it warns that long-term AI monetisation is still uncertain and that a supply glut cannot be ruled out if construction outruns demand. A separate note from the firm says power availability will remain a binding constraint on how quickly capacity can expand, influencing site selection, permitting and project economics.
For investors, the result is a market that still offers opportunity, but with far less room for complacency than the rally in AI-linked shares might suggest. Allianz Global Investors says periods of spread volatility could create attractive entry points in credit, particularly for active managers willing to separate the strongest issuers from the more speculative names. Its broader message is that AI may indeed prove transformative, but the winners are unlikely to be every company exposed to the theme. The hyperscalers may remain vital businesses, the firm says, but their market values may need to come down from the assumption that every part of the AI build-out will deliver exceptional returns.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
