The Tool Desk
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How debt and equity differ for AI infrastructure
| Question | Debt financing | Equity financing |
|---|---|---|
| What does the capital provider receive? | Contractual repayment, commonly with interest and fees. Loan documents determine security, guarantees, covenants, and recourse. | An ownership or equity interest with negotiated economic and governance rights. Preferred equity may have priority returns or other terms that differ from common stock. |
| Are scheduled principal payments required? | Typically yes, according to the loan’s payment schedule and maturity. | No scheduled principal repayment in the same way as a loan, though the instrument may include negotiated return or redemption mechanics. |
| What happens to existing ownership? | Borrowing does not by itself issue new ownership, though a lender may have contractual rights over assets or operations. | Issuing equity can dilute existing owners and may affect governance or control. |
| What is the main financial pressure? | Making payments when due and meeting covenants, including if construction, power delivery, or customer revenue is delayed. | Sharing future economics and potentially decision-making with investors, according to the investment documents. |
Neither instrument has a universally lower cost. Comparing only a stated interest rate with an equity return target misses other costs and risks: fees, collateral and guarantee obligations, covenants, refinancing exposure, dilution, preferred claims, and tax treatment. Those details depend on the specific transaction and jurisdiction.
Match the financing to the project’s cash flows and risks
AI infrastructure combines large upfront spending with risks that can arrive on different timelines. A data center may need land, power, permits, construction, cooling, networking, and GPUs before it earns revenue. Evaluate those dependencies together rather than treating a loan or equity raise as an isolated funding decision.
- Revenue certainty: Identify whether expected income is supported by an executed customer agreement, and assess the customer’s concentration and the timing and conditions of payments.
- Buildout and power: Test whether construction milestones, permits, power availability, and network connectivity line up with the dates assumed in the operating and debt-service plan.
- Asset life and loan term: Compare the debt maturity with the expected economic life of GPUs and related infrastructure. Underwriting should account for utilization, obsolescence, and uncertain resale or recovery values rather than assuming equipment will retain value through the full loan term.
- Downside capacity: Model delays, lower utilization, customer changes, and refinancing difficulty. Consider whether the project or sponsor can absorb them without missing payments or losing critical assets.
- Control and flexibility: Review what lenders can restrict through covenants and collateral rights, and what equity investors may receive through voting, consent, or preferred-return provisions.
Debt is more defensible when a project has credible, timely cash flows and can meet payment obligations under realistic downside cases. Equity can be more suitable when revenue remains uncertain, construction risk is substantial, or scheduled payments would make the project fragile. A blended capital structure can allocate different risks to different funding sources, but it also creates multiple claims that must be understood together.
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Financing structures used for AI infrastructure
Project-level or private debt
Project-linked borrowing can fund a defined campus or development, with repayment and security arrangements set out in the loan documents. Applied Digital announced in June 2024 a private debt facility of up to $200 million for its Ellendale high-performance computing data-center project. The company described it as a step toward project financing and a long-term hyperscaler lease. That announcement illustrates one issuer’s project-related debt arrangement; it does not establish that similar financing is available to other developers.
GPU-backed and equipment-related debt
Equipment financing can connect borrowing to GPUs and related infrastructure, but the collateral does not eliminate operating risk. A lender will need to consider the equipment’s value, deployment, utilization, useful life, and the revenue supporting repayment. IREN Limited’s 2026 filing described an approximately $3.6 billion senior-secured GPU financing program: approximately $1.5 billion in delayed-draw term debt plus $2.1 billion in senior secured notes. The filing said proceeds would finance part of GPU and related-infrastructure acquisition costs for deployment supporting a Microsoft agreement. The disclosed amounts and structure are specific to that program, not a benchmark for other borrowers.
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Corporate or large-scale debt facilities
Debt can also be arranged at a company level to fund infrastructure expansion. CoreWeave announced in May 2024 a $7.5 billion debt facility led by Blackstone and described its infrastructure as specialized GPU cloud capacity. The announcement is evidence of a particular company’s financing, not proof that a new operator can secure a comparable facility or obtain equivalent terms.
Preferred equity and blended capital
Equity is not a single standardized instrument. Applied Digital announced a $5.0 billion perpetual preferred-equity financing facility in January 2025. The company said proceeds, together with future project financing, would support completion of the Ellendale campus, repayment of bridge debt, recovery of part of its prior equity investment, and platform and transaction costs. The announcement illustrates preferred equity as a negotiated instrument that can sit alongside debt; it should not be treated as interchangeable with common stock or labeled debt solely because it has specified return or priority features.
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Applied Digital’s 2026 investor presentation also showed an illustrative capitalization for a 100 MW development combining project debt, preferred equity, and common equity. The presentation described its figures as assumptions subject to negotiation and definitive documentation. It is an illustration, not settled financing terms, a standard capital structure, or evidence of market-wide pricing.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Questions to resolve before choosing a structure
- Map the project’s funding needs. Separate development, construction, GPU procurement, and operating needs, and identify when each payment must be made.
- Map cash flows to claims. Compare the timing and reliability of customer receipts with debt service, fees, and any preferred-equity returns or priorities.
- Read the full financing documents. Identify collateral, guarantees, recourse, covenants, draw conditions, maturity, default rights, and any restrictions that could affect operations or future financing.
- Stress-test the asset and customer assumptions. Examine GPU useful life and resale uncertainty, utilization, customer concentration, construction completion, power delivery, and the consequences of a delayed or changed customer agreement.
- Assess dilution and control. For equity, establish what ownership, return priority, voting, consent, and other governance rights investors receive, and how future capital raises could affect current owners.
- Check maturity and refinancing exposure. Determine whether debt falls due before the facility reaches stable operations or before the underlying assets and contracts can support refinancing.
For the named transactions, public announcements describe issuer-specific structures and uses of proceeds, not a consistent set of comparable pricing, collateral, recourse, or covenant terms. A financing announcement also does not by itself establish that a facility was fully drawn, remains available, or is suitable for another borrower. Confirm transaction status and definitive terms in the relevant filings and agreements. The cited examples are primarily U.S. company disclosures; legal, tax, securities, accounting, and insolvency treatment varies by jurisdiction and instrument.
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Other emerging funding options
A March 2025 Clifford Chance briefing identified GPU-backed lending, GPU debt funds, leasing or subscription, and vendor financing among emerging data-center financing models responding to GPU supply and cost constraints. These categories broaden the options beyond conventional corporate borrowing and equity issuance, but the briefing does not establish typical pricing or that a given program is available to a particular operator. Compare each option’s payment profile, asset rights, end-of-term obligations, flexibility, and fit with the equipment’s expected economic life.
Quick Recap
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