Deutsche Bank Explores Hedges For Data Centre Exposure as AI Lending Booms

Financial Times: Deutsche Bank is exploring ways to hedge its exposure to data centres after extending billions of dollars in debt to the sector to keep up with demand for artificial intelligence and cloud computing. Executives inside the bank have discussed ways to manage its exposure to the booming industry as so-called hyperscalers pour hundreds of billions of dollars into building infrastructure for their AI needs that is increasingly funded by debt.

The German lender is looking at options including shorting a basket of AI-related stocks that would help mitigate downside risk by betting against companies in the sector. It is also considering buying default protection on some of the debt using derivatives through a transaction known as synthetic risk transfer (SRT).

Deutsche's investment banking business has 'bet big' on data centre financing, according to one senior executive. However, the scale of expenditure on AI infrastructure has prompted concerns that a bubble is forming with some likening the enthusiasm to that which preceded the dotcom crash. Sceptics have pointed out that billions of dollars have been deployed in an untested industry with assets that quickly depreciate in value due to the rapid change in technology.

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