Global muscle will sift puny data center providers

Amazon.com

Thu 20:30

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Karen Kwok
NEW YORK, Nov 5 (Reuters Breakingviews) - The Democratic sweep of the US Congress and many state houses may end up strengthening the very technology giants the new party in power seeks to rein in. Amazon AMZN.O, Microsoft MSFT.O and Alphabet GOOGL.O have the financial firepower and global reach to keep building contentious data centers, while existing infrastructure could become more valuable as new supply grows scarcer.
Governor-backed data center pauses account for 41% of planned server farm capacity, according to research outfit Cleanview,. Texas poses the biggest threat. Of the Lone Star State's 801 data-center building projects tracked by Cleanview, nearly two-thirds are still in the planning stages. Governor-elect Gina Hinojosa, like her predecessor Greg Abbott, is calling for a moratorium until lawmakers enact stronger protections for local communities. Many of the current build outs scheduled for the next two years could remain insulated. However, negotiations over electricity costs, water use and economic benefits could prolong delays for future developments. That raises questions about the next wave of spending on chips, servers and other data-center equipment after 2028 that might hurt the likes of AMD AMD.O and Intel INTC.O.
Microsoft, Amazon and Google already operate substantial portfolios. The greater advantage is flexibility. For instance, the company led by Andy Jassy held $114 billion in cash and marketable securities at the end of September, despite an investment binge that has pushed it to negative cash flow. Crucially, the tech titans have the fire power to absorb higher operating costs, finance upgrades or redirect future data centers abroad. Meta Platforms META.O President Dina Powell McCormick on Wednesday said building overseas is an option and a hedge.
Smaller, heavily indebted AI developers face a tougher environment. CoreWeave CRWV.O is more exposed to construction delays than others: penalties could postpone revenue and erode the company's returns. Yields on CoreWeave's unsecured bonds due in 2030 and 2032 have exceeded 15%, levels associated with distressed debt. Microsoft, meanwhile, has passed on an option to expand its Texas computing agreement with Nscale, Bloomberg reported. That illustrates the bargaining power hyperscalers wield over developers reliant on their contracts.
The Nasdaq Composite, meanwhile, was heading towards a correction on Thursday; CoreWeave had shed 8% of its equity value in mid-afternoon trading. A pullback in the supply of storage for computing power rewards existing asset owners, while higher building and financing costs favor those with deeper pockets. Together, that could increase prices for customers like OpenAI and Anthropic, whose profitability hinges on having more data center capacity. The spoils of the AI infrastructure boom could become even more concentrated.
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CONTEXT NEWS
The Nasdaq was set to confirm a correction on November 5 setting up the index for its worst day since the April 2025 "Liberation Day" rout. AI and data center stocks were trading down including Nvidia and CoreWeave, which fell 9% and 12%, respectively in mid-afternoon.
The sweeping US midterms victory for Democrats in the House of Representatives, Senate and several state wide races raised concerns about potential hurdles to artificial intelligence's rapid expansion.
Of the 41 data center-related ballot measures voted on this week, all but one went against server farms, according to Ballotpedia.

(Editing by Jennifer Saba; Production by Pranav Kiran)
((For previous columns by the author, Reuters customers can click on KWOK/karen.kwok@thomsonreuters.com))