Blockbuster $40b AI Investment Is Only 10% of What’s Coming (NVDA, MSFT, META, BLK)

Summary:

AI giants including Meta, Microsoft, Amazon, and Oracle recently announced a $40 billion deal that will help them secure coveted computing capacity for artificial intelligence. The blockbuster data center deal is a big reason why Morgan Stanley estimates that Global AI infrastructure spending is projected to hit $400 billion this year.

Some speculate that all of this AI dependency can be risky, however, because if AI stumbles, all major tech stocks could fall simultaneously. Previously, individual companies were affected by performance in their specific sectors, but now many will rise and fall together based on AI sentiment. It’s why so many have compared this moment to the dot-com boom of the late 1990s, where enthusiasm for a single technological trend drove valuations beyond reason.

Transcript:

Douglas McIntyre: Lee, one of the things we’re seeing in the world of AI is these massive alliances, you know, where different companies form partnerships and everybody brings piece of their expertise to the thing and work together. It’s not always clear who gets what from whom and who put what in, but you’ve got one, you just, you got one that just came out.

Lee Jackson: Boy, do I ever, I mean, when you get, okay, and I’m gonna have to, I’m gonna read these off to you, Doug. When you get BlackRock, who’s clearly has more dough than anybody in the world, Nvidia, Microsoft, and OpenAI to all chip in $40 billion to buy aligned data centers. That shows you that the demand for cloud computing and data center storage, and, and retrieval and all of that has got to be, they see it to be exponentially much, much bigger than we can see it right now. Or why would they go in and spend $40 billion to buy this? And I think it’s, I think it’s pretty provocative because it’s, it’s like all four major partners in the industry who have been very happy to just do circular financing is now, we have now deemed it to be that they’re gonna combine to have this capacity for, for cloud computing and, and all the above. But $40 billion is a big chunk of dough even for those kind of major players. And it’s interesting. Will we see more of this? Will we see other data center providers? And there’s big ones, you know, there’s super big ones and, you know, Digital Realty people like that. Will somebody go in and make a big play for them? Or somebody you know of that size and scope. I think it’ll be interesting to see if this expands and there’s more data center purchases, you know, as we head down the road.

McIntyre: If you called me up tomorrow and said to me that Microsoft bought Duke Energy there’s, or Constellation, it’s, this is crazy enough now, so that you could actually see a consolidation based on an based on ownership. If I’ve got, if I’ve got the technology and you’ve got the infrastructure, maybe I should just buy you.

Jackson: Absolutely. And I don’t think, you know, and as we’ve discussed, you know, you’re not gonna build any small scale nuclear reactors anytime soon. And the approval process, you know, could take forever. Although I’m sure they could help speed it up ’cause we’re gonna need it for the national power grid ’cause we’re gonna need it. But yeah, I think, I think that’s true. And you know, there’s big players like Digital and Equinix and people like that, you know, that have been in the business forever, you know, from, you know, startup, you know. In that industry. And it’s interesting to focus on, well, will they continue to build more or will people continue to consolidate that industry? Because again, the question is, is it getting away from itself as well? Are we building too many data centers? I don’t think so because the demand is just never ending. But boy, it, there’s gonna be a point, I think when, and, and we’ve had this discussion where data center usage and power usage is gonna, there, there’s gonna be an issue here at some point, and that’s why most of these people are trying to desperately to find a way. That’s why they’re building data centers in North Dakota and South Dakota because of the, the big, you know, oil fields up there, and that’s why they’re building them in Texas. That’s why they’re building them out in the Permian and out there. And so it’s like, okay, if we can’t bring the electricity to us, we’ll go to where the gas, the natural gas is, and we’ll build our own.

McIntyre: It’s funny, CNBC did a, an article today and it’s, it’s, it’s based on a, a see your own shadow premise. Apparently, the people looking for data centers are shopping around the utilities. So if I’m gonna build a data center, I may call 10 utilities try to. What’s happening is the utilities are now getting confused about how many data centers there might be. Because if, if you call me and it’s just, I’m the one utility and you’re the one person who wants a data center, that’s easy to count, right? One guy called me about one data center, but if I’m the utility and ten data centers around and you say to me, “Do a forecast. I want you to forecast for me how many data centers we’re gonna have to support. It’s like, well, ten guys called me, but if I don’t get any of them? Or what if I get all 10? So there’s a capacity calculation problem that has the chance of me being that you’ll have overbuilding it. It could be that people have phone calls that they think, well, I’ll, I’ll build because I’m gonna get five of the ten. The town over does the same thing. There is a situation, scenario, as they say, where you could have overbuilding based on shadow demand, is they asked me, so it must be that they’ve picked me.

Jackson: And the thing that will be interesting to see, if we do overbuild, which typically you know, has happened in the United States for, you name it, what do you do with empty data centers, with racks and racks and racks of servers>

McIntyre: When that happens, we’ll just pull out the racks and turn ’em into huge barnyards. Listen, at least we know they have to be close to water for cooling. We know that they’ll get some electricity, so we need to keep the lights on for the cattle. So there’ll be water for the cattle ’cause they’ll be located, they’ll have water and we’ll have some electricity and we can use it. We can use them basically as a huge farm.

Jackson: Well, I think this deal is either the beginning of the end or the end of the beginning. You know, I don’t know what it is for the data center wave and, and, and data center building and data center construction, but we’ll find that out soon enough.