AI Boom Faces Funding Hurdles: Bank of America Warns of Cash Crunch for Tech Giants

The exhilarating pace of the artificial intelligence (AI) revolution is encountering a significant challenge: funding. According to recent research from Bank of America, major technology companies are increasingly turning to external financing to fuel their massive AI infrastructure projects, signaling a potential cash crunch.

The report highlights an unprecedented surge in borrowing, with tech firms, including industry titans like Meta Platforms and Oracle, collectively issuing an astounding $75 billion in bonds and loans during September and October alone. This figure is more than double the annual average borrowing over the past decade, underscoring the escalating capital demands of AI data center construction.

The Shift Towards External Financing

Historically, tech giants have largely self-funded their ambitious expansions through robust cash flows generated from core businesses such as cloud services and digital advertising. However, the sheer scale and speed required for developing the next generation of AI data centers are now stretching internal resources to their limits.

Bank of America’s analysis indicates that capital expenditures (capex) dedicated to AI initiatives are rapidly approaching critical thresholds. Projections suggest that AI capex could consume 94% of operating cash flow (after accounting for dividends and share repurchases) in both 2025 and 2026. This marks a substantial jump from 76% in 2024, illustrating the growing strain on companies’ financial liquidity.

For instance, Meta Platforms recently secured $30 billion in financing for a new data center in Louisiana, despite holding over $60 billion in cash reserves against $37 billion in total debt. Similarly, Oracle’s debt now stands at nearly $96 billion following an $18 billion bond issuance and a $38 billion loan, raising concerns that interest payments could consume a larger portion of its quarterly net income.

Key players such as Amazon, Alphabet, and Microsoft are also experiencing sharp increases in their capex shares, signifying a broader industry pivot towards leveraging debt markets.

Implications for Sustainable Growth

This evolving funding dynamic introduces new layers of leverage that were less prominent in earlier phases of technological advancement. While external financing can sustain the relentless pace of AI innovation, it also raises pertinent questions about sustainable growth, especially against a backdrop of high company valuations.

Estimates project global data center spending to reach a staggering $3 trillion by 2028, with a significant portion expected to be externally financed. Although cash flows within the sector remain strong, totaling hundreds of billions annually, the rapid rate of investment is now outstripping internal funding capabilities. The shift highlights a critical juncture for the AI industry, balancing aggressive expansion with prudent financial management.