AXA Warns on Data Center ‘Gambles’ as Private Credit Risks Rise

Core Viewpoint - AXA SA is exercising caution in financing artificial intelligence (AI) developments due to emerging risks in private markets, despite a belief in the medium-term trend of AI [1][2] Group 1: AI Financing Strategy - AXA is avoiding overly specialized data centers dedicated to single technologies or players, focusing instead on data centers with inference and general-purpose capabilities [2] - The company acknowledges the significant investments in AI infrastructure, which have reached astronomical volumes recently [1] Group 2: Private Credit Market Concerns - The collapse of US auto parts supplier First Brands has raised concerns about risks in the $1.7 trillion private credit market, affecting financial firms including insurers and banks [3][4] - AXA has approximately €65 billion deployed in private and structured credit, and is reviewing its portfolio line by line in response to recent market events [5] Group 3: Investment Guidelines and Portfolio Management - AXA's private and structured credit allocation constitutes around 14% of its total deployment, with over half in senior tranches of collateralized loan obligations or mortgages in Europe [5] - The firm maintains a focus on investment-grade assets, with about 84% of its private credit portfolio rated as such [5] - AXA prefers single managed accounts or structured funds with strict investment guidelines, avoiding investments without covenants or in covenant-lite arrangements [6] Group 4: Economic Considerations - AXA is steering clear of technological bets and exposure to subprime consumers, noting a two-tiered economy in the US where affluent consumers are increasingly driving market trends [7]