Why Blackstone Thinks AI Bottlenecks Could Work in its Favor
On their earnings calls earlier in the week, Meta Platforms and SpaceX delivered the same underlying message to investors: demand for AI is running ahead of the supply of AI compute. On Thursday, another important player in the AI ecosystem—Blackstone, the alternative asset management giant—repeated a version of that refrain.
On its own earnings call, the firm, a major investor at the center of the AI data center boom, faced pointed questions from analysts about rising financing costs and mounting investor concerns over the sustainability of the buildout. Its executives argued that the very factors threatening the AI industry’s expansion could actually work in Blackstone’s favor. CEO Steve Schwarzman noted that constraints on power availability and growing public opposition to new data centers are making it harder to bring new capacity online, potentially making existing facilities more valuable. Blackstone President Jon Gray also suggested the firm could seek higher returns on projects where it hasn’t signed leases yet in order to offset rising borrowing costs.
Blackstone’s third-quarter results offered some support for that argument: Its infrastructure investments were buoyed by what executives called “extraordinary” data center leasing momentum, significantly outperforming its broader private equity and real estate holdings. “Despite all the negative things you’re reading about AI today, when we look across our business, this continues to be the area where we’re driving the highest returns,” Gray said during the call.
But it’s hard to ignore the fact that the financing concerns and roadblocks threatening the broader AI infrastructure buildout are also hitting closer to home for Blackstone. Fears about rising financing costs have sent CoreWeave’s stock and bond prices plunging—the neocloud’s shares closed down another 10% Thursday after sliding last week—while Australian AI cloud provider Firmus abruptly pulled its initial public offering earlier this month. Blackstone has provided billions in loans to CoreWeave and has both invested in and lent money to Firmus.
Blackstone has also been pressing ahead with brand-new AI ventures. In May, the firm announced an initial $5 billion equity commitment to a joint venture with Google to create a new cloud company that will use Google’s TPU chips, with plans to bring 500 megawatts of capacity online by next year. The venture could need as much as $25 billion in total investment, including some borrowed money, and it has reportedly encountered delays at potential data center sites.
Blackstone, for its part, says that broader anxiety about AI hasn’t undermined its ability to raise fresh cash for making its own investments. “We’re continuing to be able to raise capital. Obviously investors are asking the same question around AI, but what we continue to see is demand and usage of the AI going up faster than the compute,” Gray said.
While Blackstone says it wants to continue going big in AI, it can only finance a tiny portion of the industry’s broader infrastructure buildout itself. The trillions of dollars of financing needed for chips and data centers in the coming years requires raising money from a far broader pool of investors. Blackstone itself has said it’s not clear where all the money will come from.
Jas Khaira, the head of the team leading Blackstone’s push into AI investment, said late last month that the firm is still trying to determine which investors across the public debt and private credit markets will be able to provide the funding needed to sustain the buildout.
“We have not mapped out who’s going to buy all the debt. We have some hypotheses, but the honest answer is we don’t know where all of it will come from,” he said at The Information’s AI Agenda event in San Francisco.
Data Center Headwinds
Despite Blackstone’s overall positive note on AI demand, we got fresh evidence Thursday afternoon of the uncertainty in the IPO market for companies in the data center business. Phoebe Liu and Valida Pau had a scoop that SB Energy, a company controlled by SoftBank Group that is developing an OpenAI data center in Ohio, is discussing a plan to put off its IPO until December or earlier next year. Previously, SB Energy was aiming to go public in September. The best hope for an SB Energy IPO is that the supply of AI compute gets so tight that investors start warming back up to data centers.