Ares Management Corp. is steering clear of financing deals backing graphics processing units (GPUs), choosing instead to invest in data centers that house them. Chief Executive Officer Michael Arougheti cited concerns that backing GPUs could leave the firm holding assets that become obsolete shortly after release. "It's frankly a simpler underwriting with really attractive relative value," he said on a call with analysts Thursday.
Ares finds data centers and adjacent power infrastructure more attractive than GPU financing, according to Arougheti. The firm estimates AI capital expenditure needs at around $5 trillion, with roughly $2 trillion for physical AI buildings and infrastructure and $3 trillion for GPUs.
His remarks come amid heightened investor anxiety around the AI sector, with stocks and corporate bonds under pressure over concerns that massive spending may outstrip future revenues. Nearly every US bank and alternative asset manager has participated in AI financing, including Broadcom Inc.'s roughly $60 billion debt financing for chips leased to Anthropic PBC and SpaceX's talks to raise about $40 billion for Nvidia Corp. chips. These chips cost multiples more than data centers but typically depreciate over five to six years.
Arougheti noted he doesn't know how to underwrite the decline and depreciation curves on such technology. "At least for the time being, we're kind of sticking to the half of the market that we understand best," he said. Bonds of Core Weave Inc., a leading neocloud leasing GPUs to AI developers, plunged this month to distressed levels, with debt insurance costs spiking.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing