The Information : Data Center Inflation Is Here

Data Center Inflation Is Here

In the first weeks of the year, it has become clear that building data centers is getting more expensive. On a relative basis, the shift could benefit the cash-rich tech giants, particularly Google, while potentially hurting cash-burning startups.

This doesn’t mean giant data centers won’t get built. Investors are still enthusiastic about AI, and the tech giants that are funding the buildout are still rolling in cash. It could mean these companies see lower returns and some projects don’t get built or are scaled back.

The biggest and hardest-to-quantify cost is power, which has long been a major constraint on data center construction. Local governments have been complaining for more than a year about rising electricity costs, and the White House, which has woken up to concerns about affordability, weighed in.

Last week, the Department of Energy and several governors in the middle Atlantic region effectively demanded that companies building data centers agree to 15-year contracts to buy power from new power plants.

Auctions for power run by grid operator PJM have hit records, but the prices haven’t been high enough to get power companies to build new power generation. That means data center developers will have to spend more. The notably bipartisan effort is expected to generate $15 billion in new power plants.

Both Google and Microsoft appear committed to delivering their own power. As my colleague Ann Davis Vaughan wrote in our new AI Infrastructure newsletter, Google’s $4.8 billion purchase of power producer Intersect will speed its data center development. We also reported that Google is asking federal regulators to speed approval of data centers that bring their own power. Microsoft said last week it would pay more for electricity and subsidize the expansion of the electric grid.

Electric power means computing power and that could become the differentiator among AI companies. Those that can afford to build it will move ahead and those that can’t fall will fall behind. Computing power translates into revenue, a connection made clear by OpenAI’s chief financial officer, Sarah Friar, over the weekend. The company’s computing capacity roughly tripled in each of the last three years and so did its revenue.

If power was the only higher cost, it could be manageable. But there are others. Financing could get more expensive for two reasons. First, long-term interest rates hit their highest levels in more than four months this week, driven in part by President Donald Trump’s tariff threats, tied to his obsession with taking over Greenland.

Second, there will be an estimated $300 billion of AI debt issuance this year. While a lot of it will come from the tech giants, which have pristine credit, the sheer amount of borrowing could outweigh demand. That means yields could rise, making borrowing more expensive. The weight of that more costly debt will fall on the companies with less pristine credit, such as Oracle or CoreWeave. (There’s another more wonky way to think about it: Investors buy up the super-safe debt issued by the tech giants and sell off generally lower yielding U.S. government debt, which drives up interest rates for the rest of the economy.)

Then there are the costs of the gear needed to build data centers. You can start with commodities such as copper, which rose 45% last year. Demand for the metal is expected to keep growing over the next decade. AI data centers use far more copper than typical data centers do, for everything from electrical wires and components to cooling systems and servers.

Then there’s the manufactured goods. The wait time for new natural gas turbines is three to four years, making it a terrific seller’s market. That’s one reason companies such as GE Vernova are raising prices. The company has boosted margins and expects profits to grow as price increases flow through its order book. GE Vernova lifted its dividend, boosted share buybacks and is generating piles of cash. Its stock was among the market’s best performers last year.

The wait time for gas turbines is just one of many factors causing delays for data centers, as my colleague Anissa Gardizy, who also writes the AI Infrastructure newsletter, reported. There have been delays installing water-cooling systems, which Nvidia’s superfast chips require, and delays getting those chips up and running. There have also been delays connecting to the power grid and getting local approval.

The longer it takes to open a data center, the more it will cost and the harder it will be to earn a return on that investment.

I’m focusing on rising costs right now because I think their impact will start showing up this year. In extreme cases, developers will be squeezed for cash and might need to raise money to finish their projects. Higher costs might also make some cancel planned projects before they get off the ground.

As we saw with OpenAI, more computing capacity means more revenue. Those who can’t pay will fall behind.

FT : Garbage stocks are on fire again

Garbage stocks are on fire again
And a lot of hedge funds are probably hating it

It’s already been an . . . eventful year, but under the hood something odd and interesting is happening in the US stock market: the trashiest, most hated shares are soaring.

Goldman Sachs’ index of unprofitable technology stocks — which includes the likes of Planet Labs, AST SpaceMobile and Fluence Energy — is up 12 per cent already this year, despite taking a big whack yesterday from the Greenland crisis-induced crisis. Before that setback, the index had hit its highest level since January 2022.

The investment bank’s index of the most heavily shorted US stocks has done even better, jumping 18.3 per cent in just 13 trading sessions so far. There’s obviously some overlap between the two measures, but not as much as you’d think. They both separately seem to be reflecting a strong rally in the US stock market’s garbage sectors.


This is a bit odd. Trashier stocks tend to do best when the market is buoyant, as they are generally “high beta” — finance jargon for shares that rise more than the market when it is up (viz 2021), and fall more when it is down (viz 2022).

However, that really isn’t the case right now. Although the AI ebullience is still simmering in the background, this is on the face of it not a supportive environment for high-beta stocks. The S&P 500 is down 0.7 per cent this year, and the Nasdaq is dipped by 1.2 per cent.

So what’s up? Mahmood Noorani of Quant Insight argues that easier financial conditions — with US junk bond spreads narrowing sharply to a one-year low this week — understandably favours dodgier companies more than stronger ones. After all, the survivability of cash-generating blue-chip stocks is largely unquestioned, so riskier companies should benefit disproportionately more when borrowing costs fall.

This is probably a factor, but it seems unlikely that a 16 basis point drop in the option-adjusted spread of ICE’s US High Yield Index would be enough to trigger such a sharp renewed stock market trash grab in 2026.

Maybe retail investors are to blame for the flight to shite? After all, they were the main driver behind the massive rally in heavily shorted and/or unprofitable companies back in 2020-21.


There isn’t really any data, anecdotes or even noticeably different online vibes to suggest that retail investors specifically are powering this recent trash rally, but as Alphaville has written before, retail investors are arguably an ascendant force in the US stock market.

After all, they now account for over 20 per cent of overall trading volume — more than hedge funds and mutual funds combined — and far more than that in stocks that cost $5 or less. Which is squarely in trash-stock territory.

What does this mean though? Well, the violence of the rally implies that there have been some short squeezes, so Alphaville wouldn’t be surprised if we soon start hearing of hedge funds nursing some painful losses on their short books.

The worry is that this morphs into something more dramatic. Alphaville has detailed how a series of “quant tremors” shook systematic investment strategies last year, and it is interesting how many of them coincided with a rally in unprofitable and/or heavily shorted stocks.

The July and October setbacks were particularly heavily characterised by junkier parts of the equity markets being on fire, and Noorani, for one, speculates that this could be another “quant quake” in the offing.

Of course, none of the 2025 quant tremors ever escalated into something more meaningful for the broader market. Quant hedge funds really have learned the lessons of 2007. But we should probably keep an eye on the garbage rally anyway.

Update: Bloomberg News’ Justina Lee has reported that quants are indeed having a bad start to the year. From the IT company’s content marketing arm:

Quant hedge funds are kicking off the year in the red, as setbacks in crowded US stocks clobbered the strategies, reviving concerns about volatile returns in the sector.

Early January marked the worst 10-day period for systematic long-short equity managers since October, with losses reaching 1%, according to prime brokerage data from Goldman Sachs Group Inc. Most of the pain was concentrated in US equities, Goldman’s Kartik Singhal and Marco Laicini wrote in a note, drawing parallels with the sharp drops that hurt quant portfolios in June and July last year.

Losses at US quants amounted to 2.8% over the first two weeks of 2026, UBS Group AG estimated, based on its prime book. It noted that Friday had seen the sharpest one-day deleveraging since Dec. 22.

Market moves spurred by US policies this week may have taken some pressure off, but the damage has already been done. It remains to be seen whether systematic hedge funds will be able to claw back some gains.

Many quant funds ended 2025 in the black. However, they endured two violent loss-making periods, the first in early summer and then in October, when they were tripped up by reversals in momentum, coupled with a junk rally. Similarly, the most recent selloff stemmed from three main factors, according to Goldman: losses in crowded positions, short positions on high-beta names, and adverse idiosyncratic moves.

“The idiosyncratic drag has been driven predominantly by the short book, similar to the June-July drawdown,” Singhal and Laicini told clients, adding that this time momentum strategies helped cushion the blow.

WSJ : Nvidia CEO Says AI Needs More Investment in Defiance of Bubble Fears

Nvidia CEO Says AI Needs More Investment in Defiance of Bubble Fears
Jensen Huang called for higher investments to further spread the technology across developed and emerging economies

  • Nvidia CEO Jensen Huang stated AI is already generating economic benefits across industries, dismissing AI bubble concerns.
  • Huang described AI as a five-layer cake, emphasizing application as the most critical layer for economic gains.
  • He called for increased investments in AI, citing the need for more energy to expand the technology globally.

Nvidia NVDA -4.38%decrease; red down pointing triangle Chief Executive Jensen Huang said artificial intelligence is already bringing economic benefits across sectors and that the technology needs more investment, brushing aside fears that hefty spending commitments could lead to an AI bubble.

Speaking at the World Economic Forum in Davos, Switzerland, Huang described AI as a five-layer cake consisting of energy, chips, cloud infrastructure, models and application. He said AI’s application–how the technology is used in a specific industry–is the most critical layer of that cake as it is where the economic benefits lie.

Sectors like energy or semiconductors–both key to developing and harnessing the technology–are already growing thanks AI, but he said more investments are needed to ensure that the benefits of the technology spread to more industries across both developed and emerging economies.

Huang’s remarks, his first in Davos, come as some investors have started to question whether lofty AI spending commitments from some of the largest technology companies in the world are justified, fearing there is an bubble waiting to burst.

“The AI bubble comes about because the investments are large, and the investments are large because we have to build the infrastructure necessary for all of the AI layers,” he said. “I think the opportunity is really quite extraordinary and everybody ought to get involved.”

Huang has been a fervent supporter of AI, which keeps turbocharging growth at Nvidia. He said renting the company’s graphics processing units, or GPUs–chips that accelerate the millions of computations required in AI training–was becoming increasingly difficult because of unrelenting demand.

Even renting older generations of GPUs is becoming more expensive as the number of AI companies being created goes up and businesses allocate more of their budget to AI, he noted, underscoring that investment appetite remains strong despite fears of a bubble.

Huang said more power and skilled workers were needed for AI’s rollout, calling it “the single largest infrastructure buildout in human history” and dismissing concerns that AI could eliminate jobs.

Installing and maintaining the data centers, servers, chip factories and other equipment needed to power the technology will require more electricians, construction workers, network technicians and other skilled laborers, he said.

FT : Berkshire Hathaway considers selling $7.7bn stake in Kraft Heinz

Berkshire Hathaway considers selling $7.7bn stake in Kraft Heinz
Food company’s shares drop sharply as its largest investor explores exiting the group it helped to create

Berkshire Hathaway is considering selling almost its entire $7.7bn stake in packaged food company Kraft Heinz, in a move that would end more than a decade of involvement with a group it had a key role in creating.

Shares in Kraft Heinz fell sharply on Tuesday evening after it disclosed that Berkshire had registered the potential sale of up to 325.4mn shares in the company in a filing.

Berkshire is Kraft Heinz’s largest investor with 325.6mn shares, a 27.5 per cent stake. Kraft Heinz said the filing “does not necessarily mean that the selling stockholder will choose to sell any shares”.

The company’s shares were 5.1 per cent lower in pre-market trading early on Wednesday.

Former Berkshire chief executive Warren Buffett and investment group 3G Capital took ketchup maker Heinz private in 2013 for $28bn. Two years later, they put together a $63bn deal to merge the company with Kraft.

The investment has been poor for Berkshire, which is regarded as one of the world’s savviest investors, with Kraft Heinz shares having lost two-thirds of their value since 2015.

Buffett later said he overpaid for Kraft, admitting he had been “wrong in a couple of ways”. He handed over the reins of Berkshire to Greg Abel on January 1.

Kraft Heinz is in the process of splitting back into two companies. The deal would create one company with faster-growing brands such as Heinz ketchup and Philadelphia cream cheese, with the other company owning slower-selling grocery store staples. Buffett said previously that he was opposed to the split.

The former company, which has the working title of Global Taste Elevation Co, will be headed by Steve Cahillane, who took over as Kraft Heinz chief on January 1.

Cahillane formerly served as chief of Kellogg Co, overseeing its 2023 break-up into snacks company Kellanova and the North American breakfast cereal group WK Kellogg. He served as Kellanova’s chief until its sale to Mars, which closed in December.

FT : EU lawmakers vote to delay Mercosur trade pact over legal concerns

EU lawmakers vote to delay Mercosur trade pact over legal concerns
Majority back motion to seek legal opinion on deal from European Court of Justice

EU lawmakers have voted to postpone the ratification of a trade deal with the Mercosur group of South American economies by seeking a legal opinion from the bloc’s highest court.

It could take up to two years to obtain the European Court of Justice ruling, adding a further delay to an agreement with Mercosur that took 25 years to negotiate.

The European Commission, the bloc’s executive that runs trade policy, could provisionally apply the deal, already agreed by member states, pending the judgment.

But many European parliamentarians said they would oppose such a move as undemocratic without parliament’s permission. Parliamentarians voted 334 to 324 for the motion to turn to the ECJ, with 11 abstentions, as far-right politicians teamed up with the far left and Greens.

Mercosur includes Brazil, Argentina, Uruguay and Paraguay, and the deal would remove almost all tariffs in a market of 700mn consumers.

Total goods exchanged between the EU and Mercosur reached €111bn in 2024. 

The accord has long faced opposition from European farmers, who argue they cannot compete with cheap imports made to lower standards. 

Thousands of farmers demonstrated outside the parliament in Strasbourg on Wednesday and they greeted the news about the ECJ with the honking of tractor horns and loud dance music.

A Commission spokesperson said it “regrets the decision”. The Commission argues there are strong safeguards to prevent a surge in imports to the EU or a sharp fall in prices in sensitive sectors including beef, chicken and sugar. 

“The Mercosur deal is essential if we want to have a more sovereign Europe,” António Costa, president of the European Council, told MEPs just before the vote, adding that annual quotas for imports of beef were just 1.5 per cent of total EU demand.

Ursula von der Leyen, Commission president, said the deal was vital to forge stronger links with Latin America.

“I believe this is a deal that will bring benefits across our economy, across every member state. And that it can shield Europe from the risks it faces — ensuring our prosperity and our security at the same time,” she told parliament.

But Saskia Bricmont, a Green MEP who voted for the motion, said the deal would lead to more clearing of the Amazon and the erosion of animal rights.  

Some MEPs claimed those who voted for the court referral were simply interested in sabotaging the deal. 

“It’s a stalling tactic,” said Kathleen Van Brempt, vice-president of the centre-left Socialists and Democrats.

>>> US Gapping down

Gapping down
In reaction to earnings/guidance:
  • NFLX -6.8%, MMYT -5%, TEL -3.5%, OZK -2.3%, TFC -2%, JNJ -0.8%, IBKR -0.5%, WTFC -0.5%
Other news:
  • CRVS -8.1% ($150 mln stock offering)
  • ERAS -6.5% ($150 mln stock offering)
  • NEGG -5.9% (chairman is being placed under investigation and has been detained)
  • KHC -5.6% (amended registration rights agreement with 3G Global Food Holdings and Berkshire Hathaway (BRK.A, BRK.B); filed a prospectus supplement for resale of shares)
  • BIOA -5.2% ($75 mln stock offering)
  • ECO -2.2% (provides Q4 operations update)
  • SHMD -1.6% (announces a $30 million convertible notes financing)
  • ROKU -0.9% (in sympathy with NFLX earnings)
  • UUUU -0.9% (to acquire Australian Strategic Materials)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance:
  • PRGS +5.7%, UAL +3.3%, TDY +2.3%, HAL +2.1%, TRV +2%, KARO +1.3%, FNB +1.3%, CFG +1%, DAN +0.8%
Other news:
  • AVR +19.1% (announces up to $90 mln strategic investment from MDT; prices offering of 34,782,609 shares of its common stock at $5.75 per share)
  • NATH +8.4% (Nathan's Famous to be acquired by Smithfield Foods (SFD) for $102.00/share in cash)
  • TECK +5.5% (reports 2025 production update and reaffirms outlook)
  • LPTH +5% (acquires Amorphous Materials)
  • RIO +4.1% (provides Q4 production update)
  • INR +3.9% (acquires Chase Oil's working interest in Infinity's South Bend field)
  • EGO +2.8% (achieves higher-end of 2025 production guidance)
  • WKEY +2.8% (outlines space-based crypto infrastructure and global space traffic platform at Davos 2026)
  • GMAB +2.5% (announces net sales of DARZALEX for 2025)
  • PAAS +2.1% (provides Q4 operational data and FY26 outlook)
  • GME +2% (Ryan Cohen purchased 500,000 shares)
  • CDRE +2% (increases dividend)
  • SERV +1.6% (to acquire Diligent Robotics)
  • CYH +1% (to sell hospital for $450 mln)