AI Stock Selloff Puts Data-Center Financing Risks in Focus
By Jacqueline Policastro | Quincy News Correspondent
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Washington (Quincy News) — Technology stocks fell sharply Thursday as investors reassessed the outlook for artificial intelligence infrastructure spending, pushing the Nasdaq Composite into correction territory during intraday trading.
The selloff comes amid concerns that Democratic election victories could bring tougher scrutiny of data-center development and slow construction.
But the market drop reflects deeper structural risks, according to Georgetown finance professor James Angel, who warns that excessive building and borrowing could leave some AI projects unprofitable.
“The U.S. market has been priced to perfection for a long time,” Angel told Quincy News. He noted that he tends to be a “perma-bear” on valuations, adding that current prices assume every AI company and data-center builder succeeds.
Angel, who worked as an engineer at Pacific Gas and Electric before moving into finance, said getting projects powered is a separate hurdle. “The lead times on these things are really long,” he said, pointing to generation, transmission and permitting. Communities resist large industrial facilities, Angel added, and “the permitting process is way too slow.”
Commercial real estate firm CBRE reported in August that vacancy across its eight primary North American data-center markets was a record-low 1.4% in the first half of the year, and that tenants had already committed to 80.4% of the capacity under construction.
Those leasing commitments are only part of the investment calculation. Projects also need power, timely completion and enough revenue to cover their construction and financing costs.
In an Oct. 27 interview with Quincy News, WestCap founder Laurence A. Tosi called high borrowing costs “one of the largest threats to the AI buildout.” He warned that financing pressures could hit multiple participants in the expansion at once, creating interconnected risks as companies seek funding for their projects.
Federal Reserve Chair Kevin Warsh also challenged the idea that AI investment is insulated from interest rates at his Oct. 28 news conference.
“Interest rates get in the cracks,” Warsh said. He pointed to investors becoming more selective and widening credit spreads for some assets as evidence that rates were affecting investment decisions.
In an October bulletin, researchers at the Federal Reserve Bank of Kansas City wrote that AI firms’ share of investment-grade bond issuance rose from 2% in 2023 to 10% through the second quarter of 2026. Newer financing arrangements have not been stress-tested by a downturn, they wrote, and losses could spread between financially connected companies even if adoption continues steadily.
To Angel, that financial exposure points to an inevitable reckoning.
“Chances are in these kinds of booms, somebody’s going to overexpand, somebody’s going to be overleveraged, and there will be losers as well as winners,” Angel said.
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