Goldman Sachs Emphasizes Role of Artificial Intelligence in Banking Infrastructure

Leveraged Finance Practitioners Flock to AI as M&A Deals Remain Elusive

For practitioners of leveraged finance, artificial intelligence has become the dominant force in the industry, particularly in the absence of a steady supply of debt deals to finance mergers and acquisitions. At Goldman Sachs Group Inc.'s 11th annual leveraged finance and credit conference in Dana Point, California, attendees were abuzz with discussions about the trillions of dollars needed to fund AI's data centers and power infrastructure.

Over 400 investment executives and 85 borrowers, including American Airlines Group Inc. and Caesars Entertainment Inc., as well as AI adjacent companies like Applied Digital Corp. and Cipher Digital Inc., descended upon the Waldorf Astoria's Monarch Beach resort. The mood remained buoyant despite lingering anxiety over a tepid M&A return, higher interest rates, and the Iran conflict.

The numbers backing the AI complex are staggering. In the last two months alone, companies have raised more than $20 billion in the US junk-bond market. Blue-chip firms are looking overseas to widen access to financing. In one of the market's most striking developments, Apollo Global Management Inc. and Blackstone Inc. are corralling more investors into a $36 billion deal to help AI infrastructure build out by Anthropic PBC, which has confidentially submitted draft paperwork for a public listing.

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Companies have a significant capex need across data centers, power, and chips, which is so large that it touches every market involved. For Goldman Sachs' capital solutions group, AI is currently the number one theme that they are spending time on.

Most corporate bonds issued for AI facilities trade at near-identical levels. However, as supply saturates the market, bankers caution that a sorting mechanism is coming. If borrowers miss construction targets for their data centers, for example, their bond pricing will begin to diverge. You're going to get to a point where those that lag on execution will see that in their cost of capital.

Despite the AI euphoria, Wall Street is still clamoring for a return to traditional M&A. While landmark debt deals like the takeover of Electronic Arts Inc. and Paramount Skydance Corp.'s planned acquisition of Warner Bros. Discovery Inc. have added to supply, a consistent flow of transactions remains elusive. We'd all like to see a bit more issuance.

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The hunger for non-AI deals made Caesars' announcement that it agreed to be acquired by Fertitta Entertainment Inc. a big talking point. Goldman and Morgan Stanley are co-leading the $5.7 billion transaction, supported by eight other banks. Caesars Chief Financial Officer Bret Yunker even attended the conference, fielding investor questions in private meetings.

The broader return of private equity dealmaking remained a hot topic for the second consecutive year. Over a lunch buffet, Tim Ingrassia, Goldman's Co-Chairman of global M&A, addressed the crowd on the dealmaking outlook. Corporate M&A and large buyouts are currently sustaining the market, while mid-sized private equity transactions remain sluggish.

Still, bankers remain characteristically optimistic that the tide is turning. The debt markets are certainly constructive, both in terms of size and pricing, maybe with a small asterisk for the rate move over the last week or so, but we think that that backdrop is certainly conducive to more deal activity.