TheChek News Flow

World’s largest ad agency takes swipe at rivals’ approach to M&A as it raises revenue guidance after strong quarter

Publicis chief executive Arthur Sadoun has ruled out making a bid for the international business of rival Dentsu after the world’s largest advertising group raised forecasts for revenue growth for the second time this year.

The French advertising network on Tuesday promised to outperform the market again in 2026, but Sadoun said that this would not be through acquiring large rival operations.

In August, the FT reported that Japanese advertising group Dentsu had appointed banks to explore the sale of its international business, which made more than $4.5bn in net revenues last year.

Publicis was being tipped by rival executives as the most likely of the large advertising holding companies to consider a bid given the management upheaval at WPP and the merger of US rivals Interpublic Group and Omnicom.

However, Sadoun ruled out any interest and told the FT that “we have a view that is very different from Omnicom when it comes to M&A . . . we believe that consolidation of more of the same for the sake of efficiency is yesterday’s logic.”

Instead, Sadoun said Publicis would continue to invest in its AI tools to help clients create advertising faster, cheaper and more effectively. This could include acquisitions of agencies with skills or technology that would add to this strategy, he added.

Sadoun credited Publicis’s strong performance this year to clients seeking AI marketing expertise.

On Tuesday, the group reported that organic revenues grew by 5.7 per cent to €3.5bn in the third quarter, with revenues growing by 7.1 per cent in its US business and by 10.7 per cent in the UK. Europe as a whole was a drag on performance, with organic revenues growing by only 2.8 per cent.

Publicis upgraded its 2025 guidance for organic revenue growth for the second time this year. It now expects growth in a range of 5 to 5.5 per cent, up from close to 5 per cent.

The group’s performance is at odds with the rest of the industry, which is grappling with slowing client spending and the disruptive threat of AI. WPP slashed its dividend after its profits fell by almost 50 per cent in the first half of the year.

Sadoun said that Publicis — which last year overtook WPP to become the world’s largest advertising agency by revenues — had seen no slowdown in client demand despite the threat of tariffs and wider macroeconomic uncertainty. Net new billings for the first nine months of the year have already met the total in 2024.

“Not only did we not experience any material cuts in marketing spend, but we also saw an acceleration in demand for our AI-led products and services,” he said. 

Publicis’s CEO said that the company’s use of AI had not led to any job cuts. He admitted that AI would “definitely take some of the jobs in the future” but added this would “take time because it's not that easy” and those roles would be replaced by new ones.

“This is what we call progress,” Sadoun said. “The question to ourselves is are we growing fast enough to make sure that we can preserve the jobs, meaning reallocating people to new accounts, replacing some with agents and overall keeping the number of people that work for us pretty stable? Future will tell.”

Art Basel ditches ‘empty’ VIP title as it looks to reach young rich

Swiss art fair group says term has lost ‘gravitas’ and distracts focus from core audience of individual and museum collectors

Art Basel, which draws billionaire collectors to its fairs from Miami Beach to Hong Kong, has “done away with the word ‘VIP’” because it has become “a little bit empty”, according to the head of the Swiss group.

VIP status at major art fairs can offer perks such as early entry, private views of exhibitions and a luxury car service, as well as access to an adviser to help collectors navigate what is on offer.

But Noah Horowitz, Art Basel chief executive, said the term had “lost its gravitas and specificity” and distracted focus from the fair’s core audience of individual and museum collectors, as it looks to draw a new generation of buyers. Some people could find it “off-putting”, he added.

Art Basel has instead renamed the VIP section of its business as the department for “collector and institutional relations”, headed by new hire Carly Murphy, who joined from the auction house Christie’s. Institutions include public and private museums, galleries and foundations.

Brooke Kanter, head of VIP for the Americas at rival group Frieze, whose London fairs begin on Wednesday, said she had not had discussions about changing her department’s name.

Kanter said there could be a “question” about the word, but added: “Perhaps the term VIP just means something different to each of us.”

Kristell Chadé, Frieze’s executive director of fairs, said VIP was about more than “special access”, reflecting “a broad community of collectors, patrons, artists, cultural leaders and high-profile names” who support the art world, and also had a “social dimension”.

Komal Shah, a collector whose foundation promotes female artists, said that regardless of the term used, VIP status meant the fairs were “supportive of what we do” as a foundation, such as hosting events when she launched a book. She added that the early access to fairs provided to VIPs meant she was not “fighting to look at art or have a conversation”.

The art market, which is in a multiyear slump, is struggling to work out how to engage younger rich people who might be less interested in fine art than their parents’ generation.

For these younger people, said Horowitz, “art collecting is less something that’s done in isolation and it’s more part of a holistic lifestyle experience”, adding that the cohort wanted to see friends, engage with luxury brands and network with businesses when attending fairs.

“Our audiences are coming to Art Basel not just for elements of collecting and connoisseurship but luxury and lifestyle,” he said.

Auction houses are increasing their sales of luxury goods, such as shoes, handbags, wine, cars and jewellery, seeing them as starting points from which they can encourage young buyers to progress to bigger-ticket artworks.

Luxury sales were up 29 per cent to $468mn at Christie’s in the first half of 2025, while 20th- and 21st-century art made $1.29bn, a fall of 2 per cent.

The fairs’ VIP departments are still offering access to museum shows and private collections in cities where their events are taking place, as well as parties and receptions. Frieze is hosting a cocktail party at Claridge’s principally for US collectors in London for its two fairs.

Frieze’s main art fairs take place in London, Seoul, New York and Los Angeles, while Art Basel’s are in Basel, Miami Beach, Hong Kong and Paris, which begins next week. Art Basel is launching a new fair in Doha in February while Frieze is rebranding Abu Dhabi Art to Frieze Abu Dhabi in November 2026.

The global market for fine art is suffering from falling demand from high-spending Asian bidders and US turmoil. Sales fell 12 per cent to $57.5bn in 2024, according to a report by Art Basel and UBS, with a 39 per cent decline in auction lots fetching more than $10mn.

Germany to allow retirees to earn €2,000 a month tax-free

Chancellor Friedrich Merz seeking to reignite economy and address challenges of a shrinking workforce

Germans who choose to work beyond the retirement age will be able to earn up to €2,000 a month tax-free, as part of chancellor Friedrich Merz’s push to tackle labour shortages and revive Europe’s largest economy.

The government estimates that the measure will cost €890mn a year from the moment it takes effect, on January 1, according to draft legislation seen by the Financial Times. The so-called active pension plan, a Merz campaign pledge, is expected to be approved by his coalition with the Social Democrats on Wednesday.

Merz’s coalition is seeking to mitigate the impact of Germany’s ageing workforce as the economy grapples with a shortage of skilled labour after three years of stagnation. The initiative is one structural change delivered by the coalition, as part of a broader “autumn of reforms” promised by the chancellor.

“The German labour market is facing structural challenges as a result of demographic change. The baby boomers will gradually retire in the coming years, while fewer young people are entering the workforce. This is leading to a shortage of skilled workers in many industries,” the draft bill reads.

Working after retirement is allowed in Germany, as in much of Europe, but Berlin wants to make it more appealing with tax breaks.

Other countries incentivising post-retirement work include Greece, with some success. Since Athens allowed working pensioners to retain their full pensions and subject their additional income to a reduced 10 per cent tax rate, the number of working retirees went from 35,000 in 2023 to more than 250,000 as of September, according to the Greek labour ministry.

Germany faces some of Europe’s steepest demographic challenges, with 4.8mn workers — 9 per cent of the labour force — set to retire by 2035, putting pressure on its welfare state and economy.

In addition to a shrinking workforce, Germany has the shortest average working hours of any OECD economy, according to the Paris-based organisation. Meanwhile, the share of part-time workers has more than doubled to 30 per cent of the labour force since the early 1990s, mainly driven by women.

The tax incentive will also help “retain experience and knowledge in companies for longer” and lead to an “overall increase in the employment rate and contribute to economic growth and higher government revenues”, the draft bill says.

Employees and employers will pay social contributions on these salaries, offering a lift to the strained finances of Germany’s health and pension systems.

The estimate of €890mn in tax revenue shortfall per year seems to be at the low end of what economists expect, implying that the government may not anticipate a big number of recipients.

The IW Institute estimates that the measure’s annual costs could be closer to €1.4bn, with some 340,000 workers entitled to use the tax incentive.

A spokesperson for the finance ministry could not immediately comment on the estimates.

Others also note that the government is keeping existing incentives put in place to encourage workers to retire as early as the age of 63. Germany’s statutory retirement age is 67.

The number of recipients from the new measures should rise over time, Holger Schmieding, chief economist at Berenberg Bank, said, with additional positive effects on growth and social contributions “more than offsetting the costs within two to three years”.

“It is also a sign that society appreciates the contribution of older people who decide to stay on and contribute,” Schmieding said, adding: “A bit of a positive psychological effect over time.”

Investors confront top of European defence start-up ‘hype cycle’

Concern mounts that not all newcomers to the sector since Russia’s full-scale invasion of Ukraine will survive

Nicholas Nelson has received about 1,200 pitches from European defence technology start-ups this year.

The general partner at Archangel, an early-stage venture fund focused on defence tech, said the pitches ranged from detailed presentations to a handful of slides, two-page memos and even a single drawing. 

“The quality is getting better, but the quantity has gone up a lot faster,” he said. 

Nelson’s experience is far from unique. The Ukraine war and the revolution in drone warfare have catalysed interest from entrepreneurs and investors in the sector.

More than 230 defence tech start-ups have been founded in Europe since Russia’s invasion in February 2022, including 52 this year, according to Dealroom. Venture capital investment in European defence tech has similarly jumped, reaching $1.5bn in the most active year yet.

While investors welcome the influx of what they say is much-needed capital to help Europe re-arm, there is concern that hype is outrunning reality.

“We are . . . approaching the top of the hype cycle,” said Nelson, who believes the sector has attracted a “lot of ‘defence-curious’ investors who were doing crypto, impact or climate two years ago”.

Investors said a shake-out was inevitable, especially in the crowded area of drones where some estimates put the number of start-ups at more than 500. Valuations, too, have been driven up as investors have piled into financing rounds, despite many companies still being years away from delivering battle-ready capabilities.

“You have a lot of people trying to do drone start-ups because they’ve heard that is important for Ukraine or to do AI for intelligence,” said Nelson. “If they understood the market or come from the services they would know that’s actually been a thing for quite a while,” he added.

Industry executives, meanwhile, are critical of what they see as the herd mentality of some European venture capitalists.

Torsten Reil, co-founder and co-chief executive of start-up Helsing, said when the company started, “there was a lot of ‘intellectual laziness’ among European VCs who had the attitude that we do not want to touch defence. Now everyone wants to get into defence and we have the same level of intellectual laziness.”

There is concern that the rush of money targeting one part of the sector could lead to other capability areas losing out on funding. One area that urgently requires more investment is air defence.

Russia’s recent drone incursions into Nato air space have underlined the vulnerability of Europe’s defences.  

Despite some of the frothier valuations, most investors believe these are par for the course in a sector that is still evolving. There is also a long-term demand for its technologies.

Rana Yared, partner at Balderton Capital, believes the world is in a “secular trend of greater insecurity. If many people believe this then you should see a whole lot more money go into the sector writ large”.

She added: “There is little doubt that when you are in one of these big secular movements, you will end up with businesses that end up overpriced . . . and that is because the rising tide will lift all boats.” As a result, she said defence companies that had no operational experience were receiving close to the same credit as those with it. 

Khaled Helioui, a partner at VC firm Plural and an early investor in Helsing, said “you will have people waking up to poor returns — but that is OK, venture has always worked this way”.

As long as “there are one, two, three, four or five [companies] that become category defining . . . this industry will not have any shortage of capital coming to it”, he added. 

The level of management expertise within the start-ups is improving, with several funds drawing on people with military experience or a background in defence. The number of funds being launched that are dedicated to defence, such as Nelson’s Archangel, has also risen over the past two years. 

Some sizeable contracts have also started to flow in what industry executives say is a sign of the market evolving. 

Lorenz Meier, chief executive of software start-up Auterion, said scale had “ramped up hugely”. When Auterion started, an order of 100 drones was a big order. It now has a contract with the US Department of War to deliver 33,000 drone “strike kits” to Ukraine, Meier said. 

However, he added that “investors have moved from admiring the increase in funding for defence, to focusing on margins and multiples, so we do expect some consolidation in the industry”.

Government contracts are critical if the industry is going to grow and become sustainable. “We’ve seen lots of capital that is going into start-ups,” said Dame Fiona Murray, chair of the Nato Innovation Fund, but now the “real question is, are you going to get capital accumulating into some of the winners?” 

“For that to happen you have got to have big contracts. You’ve got to have governments and nations stepping up to drive big contracts and then investors have to invest at scale.”

One area in Europe where start-ups are still struggling to secure enough capital is in Ukraine. Ragnar Sass, an Estonian entrepreneur who founded venture firm Darkstar, said the best defence tech teams were in Ukraine where innovation cycles had become incredibly rapid.

In Ukraine, he said, there was “no bubble” and more funding was needed. The companies having the most impact in combat were in Ukraine and they “don’t talk, don’t have PR teams”, Sass said. 

The challenge for anyone headquartered in Europe, he added, is the need to “build new versions of your product almost monthly now”, in effect requiring core product development teams to be in Ukraine. “All investors who are serious have to be in Ukraine.”

Signa group founder goes on trial accused of concealing assets as empire faced collapse under wight of debts

René Benko, the Austrian real estate tycoon who founded the collapsed Signa empire, will return to court this week for the start of a criminal trial linked to his personal insolvency.

Prosecutors have accused Benko of concealing assets and diverting funds worth almost €660,000 to the detriment of creditors in his personal insolvency case. The two-day trial starts on Tuesday in Innsbruck and the entrepreneur, who denies the charges, faces up to 10 years in prison if convicted.

The case forms part of a wider investigation in the failure of Signa, which caught out banks, sovereign wealth funds and family offices that lent more than €15bn to entities in the group, making its implosion one of the most dramatic in European corporate history.

In July, Austrian prosecutors alleged that Benko, who has been in pre-trial detention in Vienna since January, shifted money through questionable transactions in late 2023, including an advance rental payment of €360,000, and a €300,000 gift to relatives as his empire neared collapse.

Prosecutor unveiled new charges last month, accusing him of hiding €120,000 in cash, 11 high-end watches as well as cufflinks, and other items worth almost €250,000 in the home of a relatives to keep them from creditors. The co-defendant is alleged to have contributed to Benko’s crime.

Benko has lodged an objection to the second indictment and this will be heard by the higher regional court, an appeal court known as the Oberlandesgericht. It has not yet been decided whether the newer charges will be included in the October trial.

Prosecutors were able to move quickly on the first case because it has a narrow focus on alleged transfers and concealments in Benko’s personal insolvency, rather than the wider probe of the cross-border collapse of Signa group.

The limited scope will allow for a faster trial while broader and more complex fraud and embezzlement investigations continue in parallel, according to multiple people familiar with the case.

As part of the charges unveiled last month, prosecutors said they had opened new investigations into Benko, including a potential breach of trust relating to Signa’s employee share scheme.

They are looking into whether Signa managers failed to tell employees that their shares were losing value, and whether Benko gave a false guarantee to an investor promising to cover dividend losses in return for a €5mn payment.

Benko’s fall from grace has been among the most spectacular in Europe. He presided over one of the continent’s most ambitious property and retail portfolios, which had German department stores and Alpine developments as well as stakes in the Chrysler Building and Selfridges.

The collapse of his empire has triggered cross-border legal inquiries, with investigations in Austria, Germany and Italy into suspected aggravated fraud, embezzlement, money-laundering and misrepresentation of assets.

The scandal also embroiled Julius Baer, one of Switzerland’s biggest banks, which has faced scrutiny over its exposure to Signa.

Revolut’s full UK banking licence held up by concerns over global risk controls

Europe’s most valuable start-up has waited years for approval to begin lending in its home market

Revolut’s full UK banking licence is being held up by regulators’ concerns over whether its risk controls can keep pace with the rapid growth of its overseas operations.

Bank of England officials have sought commitments from the fintech group, which has 65mn customers in about 40 countries, that it will build its risk management infrastructure to match its ambitious international expansion plans, according to three people familiar with the matter. 

Revolut, Europe’s most valuable start-up, was approved for a UK banking licence in July 2024 after a three-year wrangle with regulators but remains subject to restrictions during a “mobilisation phase”.

A full banking licence would allow Revolut to enter the lucrative UK lending market, putting to work its significant customer deposits.

The BoE’s Prudential Regulation Authority, the lead regulator of London-headquartered Revolut, is responsible for monitoring how banks manage risks around money laundering controls, IT systems and how much capital they have.

The PRA is scrutinising the robustness of Revolut’s controls both in Britain and internationally before awarding it a licence to operate as a fully fledged bank in the UK, which is why the process has dragged on for more than a year, according to the people familiar with the matter. 

Until it exits the mobilisation phase and secures the full licence from the PRA and the Financial Conduct Authority, the fintech’s banking division is allowed to hold only £50,000 in total deposits.

As Revolut’s lead regulator, the PRA was mindful that approving a full UK banking licence was likely to trigger a wave of similar accreditations in other countries that would follow its lead, two of the people added.

At the unveiling of its new Canary Wharf headquarters last month, Revolut announced plans to enter 30 new countries by the end of the decade, as part of a push to reach 100mn customers.

At the same event, co-founder Nik Storonsky said that securing a full UK banking licence was Revolut’s “number one priority” and that it had been a mistake for the company to prioritise growth over becoming properly licensed in its early stages.

“When we started international expansion many years ago, we tried to short-cut our banking licences and apply for lighter licences, e-money licences, FX licences, payment licences . . . and it was a worse product,” said Storonsky, who still owns 25 per cent of the company, according to insiders. 

The PRA says the mobilisation phase usually takes 12 months, but Revolut has been engaged in the licensing process for more than 14 months.

Revolut and the PRA have said that mobilisation is not a fixed period, and that it can take longer, particularly for larger and more complex companies.

Despite awaiting full accreditation in its home market, Revolut has clinched banking licences in the EU, through the central bank of Lithuania, and in Mexico. Authorities in Colombia this month gave Revolut the green light to set up a bank but further approvals will be required before it can start lending there.

Revolut also has its sights set on the US, where it is exploring buying a bank to get access to a national charter which will allow it to lend in all 50 states, the FT previously reported.

Revolut declined to comment but pointed to a statement it made in July in which it said it was “progressing through the final stages of mobilisation” and was working “constructively with the PRA”.

“Given Revolut’s global scale, this is the largest and most complex mobilisation ever undertaken in the UK. A thorough review is an expected part of the process and getting this right is more important than rushing to meet a specific date,” it said.

Revolut said in its annual report, published in July, that it hoped to secure full accreditation in the UK before the end of 2025.

The PRA declined to comment.

Gift from the billionaire Reuben brothers’ family foundation will be ‘transformative’ for the London arts institute and gallery

London’s influential Courtauld Institute and Gallery today reveals a £30mn donation from the Reuben Foundation, the charitable arm of the family of billionaire brothers David and Simon Reuben. The gift is the latest philanthropic boost to the UK’s struggling cultural sector, coming on the back of the National Gallery’s record-breaking £375mn donations, led by Michael Moritz and Harriet Heyman’s Crankstart foundation and the Julia Rausing Trust.

The Reuben Foundation’s gift is equally transformative for the smaller organisation, says Lord Browne of Madingley, chairman of the Courtauld’s board. “It is enormously significant and the biggest in our history, since Samuel Courtauld’s gift of a building and paintings.” These founded the institute, with its enduring “art for all” mission, in 1932. 

The Courtauld is a rare combination of a specialist arts university (the Courtauld Institute) and a museum (the Courtauld Gallery), which is the appeal to the Reuben Foundation, says Lisa Reuben, a trustee and the daughter of Simon Reuben. This year has seen acclaimed exhibitions such as Monet and London: Views of the Thames and Goya to Impressionism: Masterpieces from the Oskar Reinhart Collection, while notable Institute alumni include Gabriele Finaldi, director of London’s National Gallery, and Naomi Beckwith, deputy director and chief curator of New York’s Solomon R Guggenheim Museum.

The Reubens’ donation means that £115mn has now been raised for a major redevelopment of the Courtauld’s buildings in Somerset House on London’s The Strand, to include a new library and display rooms for contemporary art. “The crucial thing is that it will enable us to start welcoming students back,” says Mark Hallett, director of the Courtauld since 2023. The faculty is currently in temporary premises near King’s Cross with students and staff due to return from 2029, he says.

As well as the immediate financial boost to the Courtauld, there is the juicy prospect of access to the Reuben family’s art collection. Lisa Reuben, who previously worked in Sotheby’s contemporary art department and is responsible for building the collection, says this comprises more than 50 works, ranging from Vincent van Gogh to Jenny Saville, and with a significant holding of 20th-century artists such as Pablo Picasso, René Magritte and Francis Bacon. Such works would fill a gap in the museum’s collection, whose core is from medieval Europe through to Samuel Courtauld’s collection of impressionist and post-impressionist works. “Our collection essentially begins where the Courtauld’s ends,” Lisa Reuben says, adding: “It would be an honour and pleasure to loan works.”

The Courtauld’s move deeper into modern and contemporary art mirrors the National Gallery’s decision, announced alongside its £375mn investment, to add art made after 1900 to its collection. Such shifts forward in time reflect the tastes of the latest philanthropists, many of whom have boosted the art market in recent years with their interest in postwar painting.

That they are now turning to the institutions that research and show art is something of a relief, as the funding environment becomes more of a challenge. “Museums, as trusted institutions, are under enormous pressure because they are expected to perform a public service, in terms of preservation and education . . . but also increase visitor numbers, engage local and more diverse audiences, and become more accessible, while receiving diminishing public funding,” writes Gareth Harris in his latest book, Towards the Ethical Art Museum.

Lord Browne says: “It is a little difficult at the moment. There are reports of high net worth individuals leaving the UK. People do still give, but there are fewer than there used to be.” Corporate sponsorship is also tougher to bring in, he says, while scrutiny of sources of income is much higher on the public agenda, something he is more than aware of having been chief executive of the fossil fuel business and arts sponsor BP between 1995 and 2007. 

Individuals don’t escape the media spotlight, however. Harris’s book looks at concerns raised around the Ukraine-born businessman Leonard Blavatnik, who gave £50mn to a new Tate Modern building in his name, which opened in 2016, and has since received some scrutiny of his past links to a Russian tycoon who was later sanctioned in the context of the Ukraine war. (Blavatnik has stated that he has never had any connection to the Russian government or any connected political spheres, Harris writes. There is no suggestion he was being considered for any sanctions.) The Courtauld Institute too has rooms in Blavatnik’s name.

The Reuben family, whose £27bn fortune pipped Blavatnik to the second spot in the UK’s latest Sunday Times Rich List, made their money in post-Soviet aluminium deals, though since 2000 their focus has been on the less mysterious UK commercial property sector. Their holdings also include a 15 per cent stake in Newcastle United Football Club (majority owned by the Saudi Arabia Public Investment Fund). They formed their charitable foundation, which primarily supports healthcare and education, in 2002, with projects including the launch of an Oxford graduate college.

In 2019 the Reubens, through their company Guzzini Properties Ltd, were among the entities to sue the convicted fraudster Inigo Philbrick over the ownership of a $6mn painting by Rudolf Stingel, found to have been sold to multiple parties. “I am happy to say the case has been amicably settled”, Lisa Reuben says.

“We have to worry about a lot of things,” Lord Browne says. “The track record of a donor, whether what they’re doing is true to your existing values [as an institution] . . . There’s always an argument that no money is acceptable — it comes down to common sense and a balanced approach.”

Other UK museums are focused on raising endowments, in the mould of US institutions. Tate has recently announced plans to raise £150mn by 2030 while the Baltic Centre for Contemporary Art in Gateshead has launched a £10mn fund, kick-started by a “major donation” from the musician Sting. The Courtauld’s endowment sits at £80mn, “a lot for the UK but probably not enough”, Lord Browne says. Hallett says that forthcoming government funding cuts, such as to PhD scholarships, means “we have to become a bit more American in terms of attitudes to philanthropy.” 

For Lord Browne, the Reuben Foundation donation sends an important message. “The up-and-coming wealthy generations have yet to decide what to do long term and this should encourage them to fund arts and culture, which are the glue of the nation. The fact that the Reubens have done this shows there is a lasting strand of philanthropy in the UK.”

A shift towards debt raises the potential fallout from the data centre spending spree

The artificial intelligence boom is entering a new and riskier phase. Global capital expenditure on chips, data centres and cloud infrastructure has, so far, been driven by hyperscalers, funded largely through their vast internal cash balances. But the projected scale of computing power needed for generative AI is now prompting a shift towards more leveraged, opaque and circular financing structures, which raises the economic stakes riding on the technology’s success.

Between now and 2029, global spending on data centres is forecast to hit almost $3tn, according to Morgan Stanley. Big Tech groups will remain major spenders, but cash flows from their advertising and cloud computing businesses can only stretch so far. Many are increasingly looking to public and private credit sources to support further expansion. In August, Meta raised $29bn — including $26bn of debt — from private capital investors to fund centres in Ohio and Louisiana.

Although large tech groups still enjoy strong credit ratings, debt is being channelled into projects for non-investment-grade borrowers, such as CoreWeave, ChatGPT developer OpenAI and smaller AI start-ups. Finance is also being secured from other companies within the tech supply chain, creating a dense and interdependent web of exposures. This year OpenAI has announced over $1tn worth of deals for computing power with Nvidia, Oracle, CoreWeave, AMD, and, on Monday, Broadcom. Some agreements have involved complex circular financing arrangements.

The shift in financing broadens the potential economic and financial fallout should generative AI fail to live up to its promise. Until now, most concern has centred on the stock market. Last week, the IMF and Bank of England both warned that tech valuations were approaching dotcom-era extremes, heightening the danger of a sharp correction in global equities. A sudden reversal would hit investment funds, pensions and retail portfolios. But the growing reliance on debt, particularly from lower-quality issuers, now also leaves banks and the highly leveraged non-bank sector exposed to any defaults. Incestuous bilateral funding deals only amplify the risk of domino effects.

The pressure on generative AI to show it can generate the revenue needed to justify today’s investment — and pay back creditors — will intensify. ChatGPT recently reached 800mn weekly active users, and is widely used by consumers in their everyday lives. That said, broader business adoption will take time, and the longer the anticipated boost to economy-wide productivity fails to show, the greater the risk of a pullback in funding, and defaults. There are other risks too: chip innovation might mean data centres become obsolete faster than anticipated, and poor access to cheap electricity could render them unviable.

Even if the AI build-out proves to be overzealous, history suggests the excess could leave behind useful infrastructure, much like the railway boom of the 19th century or the fibre networks laid during the dotcom bubble. A glut of cheap compute power could then support the next wave of growth and innovation.

Either way, the data centre investment surge is no longer just a bet on productivity, but increasingly a test for financial stability as well. With credit, capital and confidence set to be more entwined, a stumble could shake far more than tech valuations. Corporate discipline, investor scrutiny, and regulatory vigilance will now be more important in ensuring the AI boom builds more than it breaks.