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July 29, 2026
Partner, Chief Economist
CDS spreads have started to widen out for names in AI, and the market is asking three fundamental questions:
1) Will the AI capex pay off, and how quickly? With trillions committed to data centers, chips and power up front, the question is whether AI monetization ramps fast enough to clear the cost of capital before the assets depreciate, or whether it's an overbuild whose ROIC never catches up to its WACC on a massive, front-loaded outlay. For more, see also here.
2) How is all of this being financed, and at what spread? Hyperscaler spreads are widening as the buildout is increasingly funded with debt rather than organic free cash flow, and as issuance surges, the question is whether the all-in yield climbs to a level where the marginal data-center dollar no longer clears its return hurdle, forcing the capex cycle to self-throttle.
3) Will there be unlimited demand for compute, or will compute demand peak? The bull case assumes demand is effectively insatiable as inference workloads, agentic systems and new model generations compound, but the risk is that efficiency gains, model commoditization or slower-than-expected enterprise adoption cause demand to plateau well below the capacity now being built, leaving the industry with a glut of expensive, rapidly depreciating infrastructure.
Sources: Bloomberg, Apollo Chief Economist
Sources: Bloomberg, Apollo Chief Economist
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