BREAKINGVIEWS-Stargate opens a portal to the AI feeding frenzy

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Karen Kwok

LONDON, Jan 22 (Reuters Breakingviews) - The artificial intelligence boom has a new hype man. On his second day in office, U.S. President Donald Trump announced a project backed by tech luminaries purporting to pump $500 billion into the data centers and infrastructure powering silicon minds. Details are hazy at best - but the presidential blessing is an invitation to eager investors.

At the White House on Tuesday, Trump unveiled a joint venture dubbed Stargate alongside three of its principal equity backers: OpenAI’s Sam Altman, SoftBank’s 9984.T Masayoshi Son and Oracle’s ORCL.N Larry Ellison. Together with Abu Dhabi’s investment vehicle MGX, they promise to spend $100 billion to build the servers providing computing muscle for AI, ramping up to $500 billion over four years. OpenAI would operate the venture, while SoftBank is responsible for financing it.

This is no small task. A single data center tuned for AI and fed with a hefty 1 gigawatt of power might cost up to $50 billion, a source familiar with the project told Breakingviews. OpenAI, which began the artificial intelligence gold rush with ChatGPT, is unprofitable. SoftBank’s net debt equaled 12.5% of its equity holdings’ value as of the end of September. Imagine the company increases that up to its target limit of 25%, then it can borrow about an extra $27 billion, Breakingviews calculates.

Bringing in additional backers is the obvious option, and Son’s forte after convincing sovereign wealth investors and tech goliaths like Apple to chip into SoftBank’s Vision Funds. Infrastructure funds run by the likes of Brookfield BN.TO or Blackstone BX.N have already placed huge bets on data centers. Data provider Preqin pegs available infrastructure capital to invest in North America at $145 billion this year.

Perhaps more enticing for those asset managers is the chance to use their growing debt operations for the task. Stargate could perhaps use slice-and-diced loans backed by assets like the chips powering its servers. Blackstone has turned to the commercial mortgage-backed debt market for its data center company QTS.

Of course, this was true before Tuesday. How much is even new is unclear: one of Stargate’s data centers was already being built. What Trump’s announcement offers is hype and an explicit seal of approval. SoftBank and Oracle’s shares jumped 10% and 7%, respectively, on the news, an enticing sign for other potential backers. Local regulators weighing permits for future projects now know that they are a White House priority. And it also might ease political concerns about former OpenAI investor and Tesla boss Elon Musk, who has sparred in and out of court with Altman and is close to the president. Whatever the outcome, AI mania is accelerating.

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CONTEXT NEWS

U.S. President Donald Trump on Jan. 21 announced a private sector investment of up to $500 billion to fund infrastructure for artificial intelligence.

In a press conference, Trump said that ChatGPT creator OpenAI, as well as technology companies SoftBank and Oracle, are establishing a joint venture called Stargate, which he said will build data centers and create more than 100,000 jobs in the United States. A fourth company, UAE technology vehicle MGX, will serve as an investment partner to the joint venture.

These companies, along with other backers, have committed $100 billion for immediate deployment, with the remaining investment expected to occur over the next four years.

The first of the project's data centers is already under construction in Texas, Oracle Chairman Larry Ellison said at the press conference.

(Editing by Jonathan Guilford and Pranav Kiran)

((For previous columns by the author, Reuters customers can click on KWOK/
karen.kwok@thomsonreuters.com))