The Week in Breakingviews: Data dreams delayed

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Yesterday 22:18

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Peter Thal Larsen
LONDON, Oct 24 (Reuters Breakingviews) - Welcome back! This weekly update showcases the best bits of Breakingviews. For full access to everything our columnists have to offer every day, consider taking out a subscription. Subscribe here for you or your team.
OPENING LINE
“Netflix NFLX.O is in danger of starring in a financial version of ‘Squid Game.’ Slowdowns in subscriber and revenue growth, along ​with its botched $83 billion deal to buy Warner Bros., threaten to leave the pioneering streaming service ‌fighting for its life like the contestants in its most popular show ever.”
Read more: Netflix morphs into same couch potato it mashed
FIVE THINGS I LEARNED FROM BREAKINGVIEWS THIS WEEK
The top 20% of Israeli workers bring in 93% of the government’s income-tax revenue. (Electoral stakes are high)
Advanced manufacturing and technology accounted for 40% of China’s GDP growth in the third quarter. (Unbalanced on purpose)
French government interest payments this year will amount to 2.3% of GDP, below Italy’s 3.9%. (Deficit control is distant)
Gross margins on EssilorLuxottica’s ESLX.PA smart Ray-Bans may be lower than for regular eyewear. (Competition is heating up)
Analyst expectations for Tesla’s TSLA.O 2026 operating income have crashed 80% in the past two years. (SpaceX merger is hard to resist)
RACK AND RUIN
So far, the debate about artificial intelligence data centres has been mostly about the vastness of the boom. Do we really need all these server farms, who will pay for them, and where will they find the electricity to power – and water to cool – vast racks of processors? However, recent market jitters raise a newly urgent question: what happens if fewer data centres get built?
Start with some eye-popping numbers. Stijn Van Nieuwerburgh of Columbia Business School estimates the AI boom will produce 183 gigawatts of data centre capacity in the United States alone by 2032, almost five times the pre-2025 figure. This splurge will cost more than $10 trillion and amount to more than 3.5% of US GDP over the period, making earlier investment crazes like railroads and telecoms look sober by comparison.
In the past few weeks, though, this vision has dimmed. Investors are questioning the financial viability of so-called neoclouds, the upstart developers which build data centres under contract for tech giants. Rising borrowing costs have squeezed the margin firms like CoreWeave CRWV.O can earn from buying and renting out Nvidia NVDA.O chips, casting doubt over future growth. Rival Firmus Technologies cancelled its initial public offering; other stock sales look doubtful.
Technological dreams are also colliding with real-world obstacles. Delays in accessing the electricity grid prompted Microsoft MSFT.O to walk away from a UK lease with neocloud upstart Nscale. Shares in Australia’s NextDC NXT.AX crashed after local opposition forced it to shelve a project in Melbourne. Oracle ORCL.N previously flagged similar problems in New Mexico. Multiple US states have imposed moratoria on new data centre construction.
It’s important to keep the problems in context. Nscale’s cancelled project in London had a planned capacity of 50 megawatts. By comparison, Elon Musk this week predicted that SpaceX SPCX.O would have at least 13 gigawatts of computing grunt by the end of 2027, up from just 1.7 gigawatts at the end of September.
Musk claims his company is being “haunted relentlessly” by tech giants and others seeking server horsepower. SpaceX’s chief financial officer says demand is so strong that its data centre investments are paying for themselves in less than a year. Blackstone BX.N President Jon Gray echoed the sentiment, arguing that a squeeze on new construction makes the private equity giant’s completed projects more valuable.
Even so, a world with fewer, more expensive AI data centres would force a wholesale recalibration. Chipmakers and other equipment suppliers would have to adapt to lower demand, AI users would be required to recalibrate technology costs, and financiers would need to reconsider their exposures. Rapidly rethinking the scale of a boom this big is bound to cause severe whiplash.
CHART OF THE WEEK
One reason tech companies need more data centres is to serve AI agents: more than 10 million people have downloaded Meta Platforms’ META.O Muse assistant, for example. Digital helpers are heavy users of computing power, burning through 7 times as many tokens as human-led chat prompts. How will the Facebook owner pay for it? Karen Kwok calculates that transaction fees and advertising are unlikely to cover the running costs.
THE WEEK IN PODCASTS
Back in 2021 the investment strategist Richard Bernstein coined the term “Everything Bubble” to describe the exuberant state of markets emerging from the pandemic. Now stocks are flashing familiar warnings: abundant liquidity, frantic trading, and enthusiastic retail investors. On The Big View, I talked to the financial historian and Breakingviews columnist Edward Chancellor about why the “Everything Bubble” has proved so persistent – and why he thinks this market may be the most speculative ever.
In the Viewsroom this week, Aimee Donnellan and Jonathan Guilford were joined by Karen Kwok to discuss the market jitters about financing AI infrastructure. They debate whether the damage can be contained, and if trouble in AI’s plumbing could further dent Anthropic’s weakening growth.
PARTING SHOT
For sheer corporate drama, the boardroom struggle over Tata Sons is hard to beat. In one corner is N. Chandrasekaran, the chair of India’s oldest conglomerate. In the other is Noel Tata, the scion of the founding family who chairs Tata Trusts, the group of charities that are the steel-to-software giant’s largest shareholder. There will be painful consequences whoever prevails. But in the end, Una Galani argues, defeat for the executive known as Chandra would mainly hurt the group and its 26 listed companies. If Noel Tata is thwarted it would be a setback for shareholder rights across India.
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(Editing by Neil Unmack; Production by Oliver Taslic)
((For previous columns by the author, Reuters customers can click on LARSEN/peter.thal.larsen@thomsonreuters.com))