Thoughts on the Market (Morgan Stanley) · October 16, 2026 · 4 min

AI Boom Faces a Higher-Yield Roadblock

With Carolyn Campbell

Summary

Morgan Stanley strategist Carolyn Campbell argues that rising long-term borrowing costs are becoming a real constraint on AI infrastructure build-out, focusing on data center financing. Top-rated data center bonds have moved from below 5% at the start of 2026 to near 7%, after five-year Treasury yields rose more than a percentage point, and because data center rents are largely fixed under long leases signed before financing, revenues cannot keep pace with higher debt costs. So far in 2026 operators have issued about $15 billion of ABS and $7 billion of CMBS, roughly in line with last year but below what demand growth would suggest; Campbell trims her 2026 and 2027 issuance forecasts, holds 2028 steady as large lease capacity needs debt, and still sees $120 to $150 billion of supply over the next couple of years. She favors colocation operators, with many tenants, shorter leases and around 1% vacancy, over hyperscaler campuses tied to one or two tenants on ten- to fifteen-year leases, since shorter leases let them reprice faster in an elevated-rate environment.

Key takeaways

Carolyn Campbell on AI infrastructure & data centers: Higher borrowing costs squeeze data center securitized financing because leases lock in rents before bonds are issued.
Carolyn Campbell on AI infrastructure & data centers: Data center securitized issuance slowdown is temporary; she expects $120-150B of supply over the next couple of years.
Carolyn Campbell on AI infrastructure & data centers: Colocation data centers offer the most value now: diverse tenants, shorter leases, rising rents and about 1% vacancy.

What was said, by company and theme

3 views from 1 speaker. Every quote is checked against the episode's transcript (how).

AI infrastructure & data centers

Carolyn Campbell · Morgan Stanley
Higher borrowing costs squeeze data center securitized financing because leases lock in rents before bonds are issued.
Top-rated data center bonds yielded below 5% at the start of 2026 and now yield closer to 7%, after five-year Treasury rates rose more than one percentage point since January. Data center operators issue ABS backed by rent that is already locked in under long leases signed before financing. Because rental income is fixed while borrowing costs rise, revenues don't keep pace with financing costs. Campbell's analysis suggests that once borrowing costs approach 8%, issuing these bonds on current financing terms becomes significantly more challenging, and she says the effects are already visible. The higher cost of borrowing may slow data center financing for now.
“Our analysis suggests that when borrowing costs approach 8%, issuing these bonds become significantly more challenging under these current financing terms, and we're already seeing the effects in the market.”at 1:22
Carolyn Campbell · Morgan Stanley
Data center securitized issuance slowdown is temporary; she expects $120-150B of supply over the next couple of years.
So far in 2026 data center operators have issued about $15 billion in ABS and $7 billion in CMBS. That is roughly in line with last year's pace but below what would be expected given the extraordinary growth in data center demand. Campbell attributes the shortfall to higher rates and believes the slowdown in supply is temporary. She has lowered her 2026 and 2027 issuance forecasts slightly for the higher rate environment, but held 2028 steady because a large amount of lease capacity comes online that year and will require debt financing. Her total view is around $120 to $150 billion of supply over the next couple of years, which she calls substantial even with near-term challenges.
“Still, we believe this slowdown in supply is temporary.”at 1:47
Carolyn Campbell · Morgan Stanley
Colocation data centers offer the most value now: diverse tenants, shorter leases, rising rents and about 1% vacancy.
Campbell prefers the colocation part of the data center market to the hyperscaler campuses, which are leased to one or two hyperscaler tenants on often ten- to fifteen-year leases. Colocation campuses have many tenants across many industries and shorter leases. Data center rental rates have risen sharply and vacancy is around 1%. Shorter leases let these operators monetize industry changes more quickly, and that flexibility could prove especially valuable while borrowing costs stay elevated.
“But the other part of the market, the colocation data center market, is where we see a lot of value today.”at 3:12

Topics

colocation data centers
data center financing costs
data center securitized issuance

Ask your AI about this episode

Chorus gives Claude, ChatGPT and other assistants every view from this episode and the rest of the market's podcasts. Ask who agrees, who changed their mind, and what else was said about the same companies.

Setup guide

Chorus reports what speakers said. It isn't investment advice. How Chorus works · About Chorus