BlackRock’s $30 bln AI fund is Big Tech’s backstop
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Robert Cyran
NEW YORK, Sept 18 (Reuters Breakingviews) -Governments facing a budget squeeze can’t just stop providing roads and airports, so they turn to BlackRock BLK.N and other deep-pocketed investors to help finance construction. Now, big technology companies face what is increasingly painted as a similarly existential project: spending billions on the infrastructure to run artificial intelligence. A new partnership between BlackRock, Microsoft MSFT.O and Abu Dhabi-based MGX aims to raise a $30 billion fund that might be tech giants’ backstop.
With capital expenditures from Google parent Alphabet GOOGL.O, Microsoft and Meta Platforms META.O expected to reach $160 billion next year, according to LSEG data, it might be hard to imagine AI’s problem is money. The sums, though, are staggering. Jensen Huang, boss of AI chipmaker Nvidia NVDA.O, said in February that $1 trillion of data centers might be needed over five years. These facilities consume huge amounts of power: Oracle ORCL.N says it has received permits to build three small nuclear reactors for an upcoming data center and ancillary services, requiring yet more investment.
Enticed by the promise of revolutionary progress, investors have rewarded hefty spending so far. Alphabet, Microsoft and Meta’s expected outlays for this year are 75% higher than 2022. Their combined market capitalization has risen by nearly $3 trillion since then.
Yet public companies only ever get so long a leash. In April, Meta lost $130 billion in market value after saying it planned to further ramp up spending; an ill-received push into the metaverse two years prior also weighed on the stock. If significant revenue opportunities from AI remain wanting while infrastructure demands keep rising, shareholders might call for restraint.
Of course, infrastructure funds have their own constraints. Toll roads and bridges work for private investors because, though returns are middling, they’re safe, long-term, and predictable. That means AI projects will need to sign clients up to long-dated contracts and promise returns around the infrastructure norm of 8% to 10%. That might be doable, but building the right project is key: buying already-constructed data centers often promises far lower returns.
Step back, and there are fundamental questions. AI technology has improved, but at the cost of ever more energy, data and cash. The hope is that as larger and more complex systems are built, customers will come. Technological progress may slow or become more expensive, however; the public may simply not be willing to pay up for permanently half-baked tech. Roads are needed now and always will be, but AI might be less essential.
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CONTEXT NEWS
BlackRock, Microsoft and Abu Dhabi-based MGX have partnered to establish an artificial intelligence infrastructure fund to invest in data centers and energy infrastructure. The partnership aims to raise $30 billion and will seek to increase the amount invested to up to $100 billion through the use of debt.
Investments will be chiefly made in the United States.
Graphic: Big tech capital expenditure rising rapidly https://reut.rs/4edG7Q8
Editing by Jonathan Guilford and Sharon Lam
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