" While AI will ultimately be a transformational change on the data center side as well, the near-term pipeline is literally just meeting pure cloud compute demand," he said.
“If you think about just pure compute—let’s not even go to AI and agentic AI—demand is growing 300%-400% per year, and the infrastructure is not keeping up2,” said Arougheti. “While AI will ultimately be a transformational change on the data center side as well, the near-term pipeline is literally just meeting pure cloud compute demand.”
The stability of this infrastructure buildout differs markedly from past technology booms that were characterized by more speculative financing and shorter-term commitments. Today’s data-center market shows signs of maturity that should reassure nervous investors. Specifically, Arougheti estimates that around 98% of the North American data-center market supporting that demand has already been pre-leased, with the European number hovering around 94%.3 “If you look at where all the absorption is, all of those data centers are getting taken up on long-term leases by large hyperscalers.”
The financial structure underpinning this expansion also reflects lessons learned from past excesses. “There’s a stability of the capital that’s different than we’ve seen before. Less levered, longer duration, built to suit,” Arougheti said, ticking off characteristics that distinguish current investments from the overleveraged, short-term speculation that characterized previous bubbles.
Perhaps most importantly, the physical constraints on building infrastructure may prevent the kind of oversupply that typically marks bubble peaks. “The biggest constraint also is just surrounding infrastructure,” Arougheti observed. “If you look at the 300%–400% increase in compute, the adjacent infrastructure—the power, transmission and everything adjacent—is only keeping pace.” That means power shortages could restrict AI data centers, possibly up to 40% by 2027.4 “So even if the demand wanted to overwhelm the supply, we can’t bring the supply on fast enough to meet the near-term demand,” Arougheti said.
What’s more, the supply–demand dynamics in private credit markets for data centers reveal significant unmet capital needs. “There’s frankly not enough capital in the debt markets today, when you look at banks, insurance companies, and private markets, to just satisfy the existing data center pipeline,” said Arougheti.5 “And again, whenever you see healthy supply–demand tension like that, that’s a good thing. You don’t have too much debt looking for investment.”
An ‘Old-Fashioned Credit Cycle’
Beyond the AI infrastructure debate, asset managers and investors face a complex economic environment that defies easy categorization. Corporate balance sheets remain strong, consumers have deleveraged, and portfolio companies continue generating robust cash flow growth. Yet a generation of investors has known only crisis-driven market corrections, creating a distorted perception of normal business cycles.
“I think one of the challenges is we haven’t had just a good old-fashioned credit cycle in a very long time,” Arougheti said. “And you actually have a generation of investors who have seen the [Great Financial Crisis] and COVID and have gotten into a mindset that anytime we have a correction, it’s catastrophic.”
These psychological scars are understandable, yet the data so far doesn’t support recessionary fears. “When you look at the earnings,” said Arougheti, “there’s nothing that indicates that we’re late cycle.” Ares’ own portfolio companies continue to grow their cash flow by 10%–12% year-over-year and are also deleveraging, he added.
The persistence of economic strength, years after predictions of imminent recession began, suggests something fundamental may have changed. “People have been calling for a recession now for five years, and it just hasn’t come,” said Arougheti, who speculated whether as-yet-unattributed productivity gains may be flowing through to support sustained growth.
Expand Access to Dynamic, Diversified Private Markets
Against this backdrop, perhaps the most significant structural shift in recent years is greater opportunity and access for wealth investors to so-called alternative investments: private equity, private credit, and real estate, historically the exclusive domain of institutions and the ultra-wealthy.
This “democratization” of private investing reflects both regulatory changes and product innovation, particularly in semi-liquid fund structures that balance access with appropriate liquidity features. “As a capital markets practitioner, I just think anytime we can increase access to the individual investor to invest in product that will help them through their wealth creation and retirement is a good thing,” said Arougheti.
But expanded access requires expanding education and suitability standards. “Whenever you talk about retail access to any investment product, you have to focus on suitability and you have to make sure that they understand what they’re buying,” he said, while noting that, in his personal experience, individual investors often demonstrate more sophistication than they get credit for.
Even so, semi-liquid funds may help protect wealth investors from common behavioral biases. Traditional liquid portfolios, Arougheti argued, often lead investors to sell at precisely the wrong moment.
“The retail investor has been trained for generations, ‘Don’t lever yourself and be liquid, because when things get bad, you need to be able to sell.’ And inevitably, they go sell the things that they can, not the things that they should.” But the semi-liquid structure “allows you to own these assets through a cycle, to capture all of the value creation,” said Arougheti.
View the full Delivering Alpha panel conversation on CNBC here.
