There are fears that an artificial intelligence (AI) crash could impact the private credit sector due to its substantial exposure to technology firms.
Private credit funds have lent out around $450bn (£343.6bn) to the technology sector as of early 2025, according to UBS data cited by Bloomberg.
“Infrastructure funds have been aggressively investing in data centres and may be the area most at risk,” Johann Scholtz, senior equity analyst at Morningstar, told Alternative Credit Investor.
About 11 per cent of the Morningstar European Leveraged Loan Index comprises loans to technology-related issuers, with direct lending expected to be even higher due to its mid-market focus, the research company has said.
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Recent private credit deals include AI hyperscaler CoreWeave securing $7.5bn from Blackstone last year in a debt financing facility. Meanwhile, there is a proposed plan for up to $29bn of funding from private credit investors including Apollo, KKR, Brookfield, Carlyle and Pimco for Meta’s US AI data centre expansion.
Fears of an AI bubble bursting have heightened in recent months, amid a mammoth surge in US tech share prices.
Nvidia – which has powered the AI boom through its computer chips that are used in AI chatbots such as ChatGPT – has seen its share price rise by more than 230 per cent in the last year.
Industry sources have noted that AI infrastructure is highly leveraged with shorter asset lives, making it particularly sensitive to shifts in demand.
“If AI adoption slows or forecasts are not met, cash flows could come under pressure quickly and credit losses may emerge sooner than expected,” an industry expert told ACI, on condition of anonymity. “This dynamic underscores the need for robust monitoring and transparent reporting.”
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Scholtz added that private credit is also a key component in semi-liquid structures. “High profile blowouts and funds limiting redemptions could slow down the convergence of public and private market investing,” he said.
However, unlike banks, private credit investors can not withdraw their funding overnight. Typically, a run on deposits forces banks to sell assets at fire sale prices, “triggering further pressure on asset valuations and systemic risk is triggered”.
“This scenario will not play out overnight in private credit, but if private credit fundraising slows down or decreases and banks also tighten lending it will have a negative impact on asset valuations and you could end up with an extended period of low returns,” Scholtz said.
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