How Tech's biggest companies are offloading the risks of the AI boom

By Karen Weise & Eli Tan

 

This fall, Microsoft announced a series of deals, totalling tens of billions, to lease computer power for its artificial intelligence ambitions. Meta secured almost $30 billion in financing to build a massive data centre in Louisiana without taking on the debt itself. Google also committed to rent computing power from a small company and then sell some of it to OpenAI.

 

Those deals had one thing in common: They allowed companies that make massive quarterly profits to reduce their financial exposure to the frenetic, global buildup of data centers.

 

They also signalled new ways the biggest companies in tech are manoeuvring to push some of the risk of the AI boom onto the shoulders of upstarts eager for a piece of the action. The moves let companies like Meta and Microsoft add computing power quickly and then wait to see how demand for AI shapes up before committing to projects that can last for decades.

 

 

Trillions of dollars are at stake as tech companies try to predict how much computing power AI will demand years down the line. If the big companies decide they don’t really need all that computing after the deals are over, the smaller companies and their lenders will be stuck with the consequences.

 

“Risk is like a tube of toothpaste,” said Shivaram Rajgopal, an accounting professor at Columbia Business School. “You press it here, it’s is going to come out somewhere else. It’s always in the system, it’s a matter of where.”

 

These deals also add a level of mystery to data centre financing because many companies running the data centers for the tech giants are far from the household names of Silicon Valley. Some are privately held, do business with large startups, and borrow from private lenders, all of which offers less transparency about their stability.

 

Meta’s data centre project in Louisiana mixes many of those creative financing elements into a multibillion-dollar plan taking shape among farmlands in the northeast corner of the state. Meta created a so-called special purpose vehicle named Beignet Investor LLC and worked with Blue Owl Capital, a private credit firm, to borrow money for the project.

 

Meta was responsible for constructing the data center, but Blue Owl was on the hook for 80 percent of the financing. As part of the arrangement, Meta agreed to “rent” the data center from Beignet with a series of four-year leases. That allows the tech giant to categorise the funding as operating cost, not debt, according to financial filings.

 

As part of the deal, Meta is paying a premium to Blue Owl so it doesn’t have to borrow the money itself, said Solomon Feig, a private credit lender at Pinnacle Private Credit. “Instead, Meta is renting risk,” he added.

 

Blue Owl primarily funded the project, called Hyperion, through a bond offering from Pimco, an asset management firm. Pimco, in turn, sold the so-called “Beignet bonds,” which mature in 2049, to its clients that include insurers, pension funds, endowments and financial advisers. BlackRock also bought some of the bonds.

 

“The key part of Meta’s strategy, in my view, is that they’re going to get as much of this built out with what the industry calls OPM: Other people’s money,” said Andrew Rocco, a stock analyst at Zacks Investment Research.

 

If the AI boom were to slow, Meta can walk away from the deal as soon as 2033. How much it may have to pay depends. Blue Owl could find a new customer, or sell the project,  though the data centre’s value could depreciate if demand for AI underwhelms. Meta promised to cough up enough cash to effectively repay the underlying debt without formally putting that debt on its books, said S&P Global. 

Leasing computer power 

• Data centers used for work on AI can cost tens of billions to build
• Trillions of dollars at stake as tech companies try to predict demand of compu­ting power AI years down the line
• Experts say no longer possible to mitigate risk

 

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