(Yahoo! Finance) - The AI boom has sparked a construction frenzy — and the scale of financing needed is only just starting to hit the public eye.
"Tip of the iceberg. It's just beginning," John Cortese, head of portfolio management and trading at Apollo Asset Management, told Yahoo Finance's Opening Bid.
He noted companies that have historically been asset-light are "just starting to become asset-heavier businesses."
Instagram parent Meta (META) is one example. The company "tripled the amount of debt outstanding in one month in September," Cortese said.
This massive, sustained borrowing is creating a profound shift in capital markets, turning a public spending story into a private credit lending opportunity.
Apollo is seizing the moment, targeting data centers, defense spending, and the energy transition.
"We are looking at very large shifts in terms of large financing needs across Europe and US data centers," Cortese said, noting the projects require "very long dated cash flow needs."
Private credit, which is essentially lending done by non-bank financial institutions, is stepping into the void to provide capital for these multibillion-dollar, multiyear projects.
Despite the promise of high-demand assets, there is skepticism about the rising debt load, with lingering concerns about whether companies are taking on too much debt.
Cortese pushed back on the notion, arguing that the companies funding these projects are fundamentally sound.
"Well, most of these companies have very little net debt to EBITDA. They're just getting started," he said, explaining that much of their prior spending had been financed through cash flow. The debt markets are simply the next step in the long-term build-out.
However, Cortese was careful to stress this is not a "commodity" trade. The scale is so large and the assets so complex that success in investing hinges on underwriting quality.
He pointed to Apollo's "hundreds of investment team members" who are responsible for examining those asset classes. "You need to have that to do this at scale, to have that breadth of origination, to ultimately invest in good portfolios," he said.
While the AI revolution is creating a historic, multitrillion-dollar lending opportunity, only the largest, most skilled private credit players will be positioned to handle the risks that come with these complex long-term debt, according to Cortese.
