On Wall Street similar to every other street, the half full glass is always a topic of conversation. Is the glass half full or half empty? Did you miss the run up or will those prices fall? The best way to avoid this is to buy quality stocks, which tends to the big well capitalization companies. However, when Wall Street bears ask about half empty, the sector will be affected. At the moment, the biggest conversation piece is the massive amount of money going into the AI. This means there will be winners and losers, how do you know?

In an article by Karen Weise and Eli Tan, the hyper scalers or the magnificent 7 are the prime movers of AI and will need a great amount of data centers. They have the revenues, the size and need for the results, however they do not do everything. Similar to many industries, they outsource.

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

The deals had one thing in common: they allowed the large companies to reduce their financial exposure to the frenetic, global building of data centers.

The large companies push some of the risk of the AI boom onto the shoulders of upstarts eager for a piece of the action.

Trillions of dollars are at stake as tech companies try to predict how much computing power AI will demand years down the road. If the big companies decide they do not need all the computing power, the smaller companies and their lenders will be stuck with all the consequences.

The deals also add a level of mystery to data-center financing because many companies running the data centers are far from household names. Some are privately held, do business with large startups and borrow from private lenders.

An example is Meta in Louisiana. Meta created a special purpose vehicle called Beignet Investor and worked with Blue Owl Capital, a private credit firm to borrow money for the project.

Meta is responsible for the construction of the data center, but Blue Owl is responsible for 80% of the financing. Meta agreed to rent the facility in a series of 4-year leases. This means for Meta the funding is operating cost, not debt.

Blue Owl primarily funded the project called Hyperion through a bond offering to Pimco. The firm sold the Beignet bonds, which mature in 2049, to clients including insurers, endowments, pension funds and financial advisors. BlackRock owns some of the bonds.

Andrew Rocco, a stock analyst at Zacks Investment Research, notes the key part of Meta’s strategy is they are going to get as much of this built out with what the industry calls OPM or other people’s money.

If the AI were to slow, Meta can walk away in 2033, Blue Owl would have to find new customers or sell the project.

In September, Microsoft signed a $17 billion deal with Nebius, a neocloud. In October, Microsoft signed a deal with Nscale, a privately held British neocloud. In November, it agreed to a $10 billion deal with Iren, a former bitcoin miner. It also signed with Lambda, another neocloud. (Neoclouds are the new generation of data-center providers).

Alex Platt, an analyst at the investment bank D.A, Davidson, noted it was very savvy of the big companies. There are only a handful of companies that can do it.

Linking to dividend paying stocks, large companies tend to be vey good at trying to lower risk. While everyone talks about a competitive environment, the reality is that large profitable companies to have a division or two that has monopoly like environment to make money. In the world of insurance companies they have re-insurance companies to lower the risk to the individual company. Lowering the risk, allow plenty of upside potential is the path to generating wealth.

There are more questions than answers, till the next time – to raising questions.