HSBC CEO warns: Not every data center is a good investment amid the AI boom

HSBCwatch nowVIDEO1:5301:53HSBC CEO on AI's business potential: 'It's going to be transformational'Squawk Box Europe

AI is a transformational technology worth investing in — but investors must be selective when investing in data centers, according to the head of one of the world's biggest banks.

Speaking to CNBC's Dan Murphy on Tuesday, HSBC CEO Georges Elhedery called artificial intelligence "a major enabler to re-engineer and reimagine all our businesses, all our activities."

"It's going to put a lot of power back in the hands of our colleagues because of the level of productivity it gives them, so it's going to be transformational, and we're certainly very much on a journey to adopt it," he said, adding that AI would help to "re-engineer the bank."

But when it comes to investing in infrastructure underpinning the technology, he advised discernment over an all-in approach.

"One has to be selective," Elhedery said. "You have to look at the quality of the tenancy agreements. You have to look at the pricing of these contracts. Not all of them are of that level of virtuosity that you can support strongly. Some of them may be more challenging."

HSBC was ranked as the seventh-largest bank in the world and the biggest lender in Europe by S&P Global last year, with assets worth close to $3 trillion. The bank — headquartered in London — is both a financier and operator of data centers.

In its 2025 annual report, HSBC said it intends to become "the leading bank for fast-growing transition ecosystems," noting that its customer base spans areas including data centers and the AI sector.

Data center campuses house the servers that power AI and cloud computing, and have seen a multibillion-dollar boom in recent years.

Global spending on data centers could reach $7 trillion by 2030, according to McKinsey, with Big Tech increasingly tapping private credit and taking on debt to fund the development of the facilities.

But AI borrowing is becoming a source of tension in financial markets, as the cost of capital soars and corporations add to huge debt piles as they race to finance AI and the build-out of data centers. Debt-hungry AI companies face increased risk as bond yields spike

Speaking at LSEG and Eurasia Group's GZERO Summit in London earlier this month, Mohamed El-Erian, chief economic adviser of Allianz and former CEO of PIMCO, highlighted the competition for financing between governments and AI-related companies as a source of pressure in bond markets.

"Governments are borrowing what they're borrowing, plus they're refinancing debt at a higher level of rates," he said. "[And] you have hyperscalers who last year raised $200 billion in bond financing, and are probably going to raise a trillion in bond financing this year. They are yield insensitive. They are spread insensitive because they are betting on something that is truly transformational."

Bond yields issued by various major economies have hit multi-decade highs in 2026, amid concerns around elevated government deficits and mounting debt levels alongside fears of sticky inflation and more hawkish central banks.

JPMorgan Chase estimated earlier this year that $4.1 trillion in AI-related debt will be issued by the end of the decade, as data center and other AI-adjacent companies splurge on building capacity. Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.