AI Infrastructure is Next Frontier for Private Credit Growth
Artificial intelligence is expanding private credit beyond its traditional role financing sponsor-backed leveraged buyouts, creating opportunities in data centers, computing capacity and other infrastructure while increasing underwriting risks in software, according to HPS Investment Partners.
HPS, which is part of BlackRock, said large corporations and investment-grade borrowers increasingly seek flexible private financing for AI-related capital investments, in its latest article, “AI and private credit: Assessing risk and finding opportunity.” The shift coincides with private credit’s broader move up-market: Average fund size increased from $627 million in 2020 to $1.05 billion in 2024, according to BlackRock, giving managers greater capacity to execute large transactions.
The scale of AI investment has prompted comparisons with the telecommunications boom of the late 1990s. HPS sees an important distinction, however: Much of today’s infrastructure is supported by committed customers before construction finishes, rather than speculative demand that may never materialize.
For lenders, that makes counterparty quality central to underwriting. Projects backed by hyperscalers and investment-grade companies may offer protection through long-term contracts, though investors must still evaluate construction execution, power availability, customer concentration, and technological obsolescence.
AI is also widening performance differences within software. HPS said recent volatility reflects not only fears of disruption, but weaknesses inherited from an era of high valuations, abundant capital, and aggressive leverage.
Many software companies previously emphasized revenue growth while assuming scale would eventually produce cash flow. Lenders are now placing greater weight on profitability, customer retention and near- to medium-term debt-service capacity.
That shift matters as private credit funds manage investor concerns about software exposure. BlackRock estimates private credit default rates remain around 2% to 3%, below the long-term average of roughly 3.5%, but argues that outcomes will vary widely among borrowers.
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