Off-balance-sheet funding tops on-balance sheet debt. What could possibly go wrong?
Nikkei reports that hidden debt at U.S. tech giants swelled eightfold in roughly four years to an estimated $1.65 trillion as artificial intelligence investments ballooned, a Nikkei study shows, exceeding the roughly $1.35 trillion in debt reflected on their balance sheets and making it tougher for investors to assess risk.
As an example, Meta formed a joint venture with funds managed by U.S. investment firm Blue Owl Capital to build a $27 billion data center in Louisiana By investing in the data center's operating company with a 20% stake and using the facility under a lease agreement, Meta secured computing resources but also increased its hidden debt. Meta has a contract guaranteeing investors' losses if the data center becomes unnecessary and the lease is terminated.
At risk are overleveraged hyperscalers, private-capital investment companies, and investors in those companies (e.g., pension funds).
