Data Center Boom Faces Wall Street Skepticism

Author: Bloomberg Television · Watch on YouTube

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Original language: English

Original video: Data Center Boom Faces Wall Street Skepticism · Channel: Bloomberg Television · 05:26 · Watch on YouTube

Topics: AI governance and regulation, AI infrastructure and hardware, Markets and economy

Summary

Maureen Farrell says Wall Street’s enthusiasm for data center-related IPOs has cooled, with investors raising questions about profitability, debt, and the scale of the spending required. Local opposition, permitting delays, and rising interest rates are adding to uncertainty about whether planned projects can be built as expected. Private markets have supplied substantial funding, but the industry may need public-market investors to finance its expansion. Farrell says the resulting delays and uncertainty could make the data center buildout more expensive and difficult.

Key points

Bankers had expected data center builders and power suppliers to account for a significant share of IPOs, but those offerings are now looking harder to complete.
Investors are questioning the profitability of AI-related projects and the debt burden of their capital expenditures.
Data centers have become a contentious issue in local politics, drawing wariness from both conservatives and liberals.
Permitting slowdowns and community opposition raise questions about whether projects can proceed on the ground.
Rising interest rates increase the cost of financing data center projects.
Private markets have raised money and lenders have supplied debt, but the data center IPO market has not yet materialized as expected.
Farrell says the industry may need public-market investors to meet its financing needs, and that raising the required funds without IPOs is a concern.
Protests, regulatory uncertainty, and permit delays can make project returns harder to predict and construction more costly.

Chapters

Start	Chapter	Summary
00:00	Data center IPO enthusiasm fades	Farrell describes how expectations for a wave of data center-related IPOs have given way to investor skepticism.
01:38	Project risks and local opposition	The discussion turns to community resistance, permitting delays, and higher interest rates as obstacles to building data centers.
03:16	The funding challenge	Farrell explains that private capital has funded projects so far, while the industry may still need public-market investors to finance its expansion.
04:52	Political and permitting uncertainty	Farrell says protests and permit delays make costs and project returns harder to predict, potentially making the buildout more expensive.

Quotes

these are gonna be very hard to get done. — 00:31

I think it’s all of the above — 01:38

you have to play in it. — 03:47

it’s just gonna be a much tougher road — 04:21

that’s gonna be very costly. — 05:26

Concepts and entities

Maureen Farrell, PIMCO, data center, IPO, mercados privados, licenças

Full transcript (original language)

00:00 This is the focus of a New York Times piece on Wall Street’s growing skepticism of the data center boom. The Times is Maureen Farrell, wrote that piece, joins us now. Maureen, great to speak with you. Thank you very much for for joining us. And maybe I could start with a broad question, just having you mark this moment of of transition. So much of the conversation surrounding AI over the last few weeks has been on, this broader existential threat potentially, the anxiety that I think a lot of policymakers and people are are feeling. It does seem from your reporting that that’s starting to be manifest now in other parts of this broader AI universe.

00:31 Exactly. I mean, just a few weeks ago, it really looked like the IPO market, this for the rest of the year was gonna be dominated by data center IPOs. I talked to bankers. They were expecting at least sort of a third of all the IPOs would be data center builders for these AI data centers or the companies that supply power to them. And very quickly, it’s looking like these are gonna be very hard to get done. So it it does feel like a real moment for the first time in the public markets, at least. We’re seeing these companies try to tap them. There’s a sense that the

01:06 appetite would be insatiable for anything data center related. And now we’re seeing all these, like, existential questions that are, you know, are spilling out into the public markets, and we’re seeing investors sort of voice some skepticism too. What is driving, the sudden res reticence? Excuse me. I can I can speak words? Reticence. Is it is it one or two factors specifically, or is it a combination of all of the things? I mean, what comes to mind is, like, the actual profitability of this technology, the debt ratios of some of these CapEx expenditures. What are the big concerns, or

01:38 is it just all of the above? I think it’s all of the above, and more and more things keep on getting added to the list of the all of the above. I mean, in if you look at so many state and local elections are being data centers are dominating the conversation, and it seems to be one of the few issues that’s sort of uniting the right and the left, conservatives, liberals that there there’s a lot of wariness about having data centers in local communities. So that’s one big thing. And I think even in the last few weeks, the noise has kind of gotten louder on that. So that’s and we’re seeing

02:12 some issues like permits getting slowed. So I think there’s real questions of how are how is this gonna play out on the ground even if people wanna even if companies are planning to commit, you know, billions, trillions, as you say. What’s gonna happen on the ground day to day to get this done? Plus now we obviously have rising interest rates, so it’s gonna cost so much more. And but, you know, we talked about the existential crises. It’s just one thing after another seems to be giving people pause and real questions around this. Maureen, how are firms looking at these deals? I had Manny Roman on a panel last

02:46 week and the CEO of PIMCO, and we talked a bit about PIMCO’s involvement in projects in Michigan and Louisiana. And and I kind of took away from that conversation PIMCO being involved in those deals not as them kind of giving a rubber stamp to the promise of AI, but feeling like they’d come to some agreement that these deals were good deals. They felt like they were negotiated well and stood them in in good stead. And I think PIMCO in a recent note said, you know, AI has gotten so big and is likely to grow so big, it’s now having a a huge macroeconomic impact on the global

03:16 economy. What insight do you have into the way in which a lot of these firms, private equity firms, other investment firms are thinking about the way they’re constructing these deals? Sure. I mean, it’s kind of changing day to day, and that mean, I you’re talking about PIMCO. Obviously, that’s on the debt side. And so it’s I guess there’s a sense PIMCO did put out a report. They said it’s, you know, more than $5,000,000,000,000, t, again. It’s gonna be needed by 2030 to finance this AI boom. So for a firm like

03:47 them and so many others, it’s almost like you have to play in it. There’s so much money. You have so much money. You’re gonna have to put your money into it. But the other question is that so much money is needed. There’s a sense that you’re gonna have to tap public market investors to build it out, and we haven’t really seen that yet. We’ve seen so much money raised in private markets to fund this out. We’ve seen so much debt lent to these projects, but we haven’t yet seen the IPO market. So I think that’s where sort of the pause is coming. And there’s a question, you

04:21 know, when you need trillions of dollars, can you do it without the IPO market? And people are people are worried about it. And I’m not saying it they’re not gonna be able to get done. It’s just gonna be a much tougher road, and it’s probably gonna be a lot more expensive than they thought to build it as of right now. Other than the the the finance and and technology concerns, which obviously are huge, how much do you think the politics is playing into this, the outrage over data centers, looming regulation, not just on the technology, but, you know, investing in a place you may try to

04:52 build out a data center, you may get protests, and then those permits might get reevaluated. Is that playing is the uncertainty there playing into this? Completely. I think it’s just, you know, writ large, it’s it’s causing worries, and we’re really seeing it on the ground. And we just talked about the New Mexico. You just talked about the New Mexico project. There’s so many different ways. I think there were questions of what can city and states really do, and we’re starting to see that. I mean, even something as simple as you know, not simple, but, like, permitting. If the permits aren’t in place or they pause them or they slow them down, when you think about these facilities

05:26 that are tens of billions, even hundreds of billions of dollars, delays like that can be so hugely costly. And just the uncertainty, like, if you can’t really plot out your return if you don’t know when things are gonna happen. So there I think the uncertainty that’s there was a sense there was gonna be uncertainty, of course, every construction project. But now there’s so much more, and that’s gonna be very costly. It’s inevitable. Maureen Farrell, great to speak with you.