Voters Put the AI Data Center Boom on Notice

[00:00:00] Speaker 1: One of the most divisive issues for voters this election season was the development of data centers across our communities and the demand for AI. [00:00:07] Speaker 2: Well, lawmakers on both sides of the aisle campaigned on stricter regulations which could stop construction of those data centers in their tracks in some states. [00:00:15] Speaker 3: Yeah, we spoke with Brody Ford. He is tech reporter for Bloomberg News, whose new article suggests the AI data center boom is set for an upheaval after the election route. There's been a lot of people, politicians, who have been outspoken about it. One of them in particular, Gina Hinojosa. She's a governor-elect from Texas. Now, you said something really interesting in your article. You said her win in Texas, you described it as the worst case scenario for data developers. Explain to us why. [00:00:42] Brody Ford: Yeah, as the election results were coming in Tuesday, at a certain point I started getting all these text messages from people who work on these projects saying, Oh, what the heck is going on? Am I going to lose my job? Because she campaigned pretty heavily against these data centers, right? They've become a real symbol of populist backlash to the whole AI moment. And in no place has there been more of the large campuses built in Texas. So she's talked a pretty hard game on pausing approvals, pausing projects until they get stronger regulations in place. [00:01:17] Speaker 3: There's been a lot of people, politicians, who have been outspoken about it. One of them in particular, Gina Hinojosa. She's a governor-elect from Texas. Now, you said something really interesting in your article. You said her win in Texas. You described it as the worst case scenario for data developers. Explain to us why. [00:01:36] Brody Ford: Yeah, as the election results were coming in Tuesday, at a certain point I started getting all these text messages from people who work on these projects saying, Oh, what the heck is going on? Am I going to lose my job? Because she campaigned pretty heavily against these data centers, right? They've become a real symbol of populist backlash to the whole AI moment. And in no place has there been more of the large campuses built in Texas. So she's talked a pretty hard game on pausing approvals, pausing projects until they get stronger regulations in place. It's yet to be seen how that actually plays out. But certainly she campaigned against them and her win was unexpected. So it definitely spooked a lot of people in the tech industry. [00:02:24] Speaker 1: And it's not just in Texas. You guys, right. There are 45 or thereabout ballot measures trying to slow or stop the development of some of these AI data centers. And only one in North Dakota got stopped. The rest of these communities are trying to slow or at least pause some of this development. This is not a popular thing nationwide. Is there a reckoning with these companies that they need to do more to at least engage the communities if they want to be able to build these things? [00:02:53] Brody Ford: Yeah, it might be one of the few bipartisan issues we've got. I mean, it's I've been shocked by the kind of way the data center backlash and fear seems to have just grown every single month. Largely, yes. The data center developers have realized this going back months that they need to be more up front, that they need to, you know, offer more community benefits, maybe offer more money to local organizations, maybe better tax deals. A big fear is resource use, right. You see a lot of commitments around not using too much water or bringing your own power. [00:03:29] Speaker 1: Right. People are really worried about spikes to utilities at a time when those are really, really already high. [00:03:35] Brody Ford: Absolutely. Right. And so you've seen a lot of strategies to try to, you know, massage the entrance. Sometimes you can put these as kind of the PR bucket and sometimes you see them making true concessions in these neighborhoods. [00:03:49] Speaker 3: So then let me bring an open AI, Brody, because they came out and they made a promise, right, to pay the electricity infrastructure. These are for future plans. So is this a good step? Is this a good first step? Is this really going to happen? [00:04:04] Brody Ford: Yeah, as far as I can tell, what opening I announced this week was kind of the greatest hits of the PR playbook of the last year. We're going to bring our own power. We're going to be up front. I mean, a lot of these centers got a lot of hate because they would come to town and make everybody sign NDAs. [00:04:20] Speaker 1: You know, all these local officials, local officials signing NDAs. I had never heard of that. I covered Washington for 17 years. I'd never heard of local officials. I'm not even sure they were. I didn't even know they were allowed to sign NDAs, frankly. [00:04:32] Brody Ford: It's a really bad look, totally. And I think it's downstream of, you remember in the 2010s, everybody wanted a tech company in their town. They wanted to be able to say that we're bringing these good jobs. And so when it came time to data centers, it felt like it was a continuation of that era. [00:04:49] Speaker 3: All right. So talk about some of the downfall that we've had from this. For example, we go to CoreWeave, right? You look at CoreWeave, what happened to them right after the midterms. Their stock fell. But CoreWeave, they have a big debt load. So they're counting on this, like, AI to boost their bottom line. So can you kind of explain to this how this, why this is such a big deal for CoreWeave? [00:05:09] Brody Ford: So there's this whole category of companies called neoclouds. CoreWeave's kind of their mascot, where their whole pitch is that we're going to get data centers up really quickly. We're going to borrow a ton of money to do it, but we're going to do it quick enough to make it all back. And so if you get in this situation where data centers are even delayed by, say, six months, that can really mess up the credit and financial picture of these companies. So that uncertainty, those potential delays have been weighing on the neocloud companies like crazy this week. [00:05:40] Speaker 1: It seems like this comes at a really pivotal time, as we have seen a slowdown in investment, as we have seen companies take a look at their AI spend, that CapEx expenditure. That's all separate. But in addition to, if they're going to face more and more legal hurdles, permitting hurdles, regulatory hurdles across the country, do you think this is going to compound when it comes to the viability of these companies? [00:06:04] Brody Ford: Absolutely. So one of the big debates in business this year has been that return on an investment for data centers, right? Because a lot of lenders are starting to say, well, I'll lend you only if I get a much higher interest rate. And so the cost of capital has been going up. And then at this moment where there was already a lot of fear, now maybe we have some regulatory headwinds. So you're absolutely right that it all kind of compounds and dovetails into a pretty gnarly dark picture if you're one of these neoclouds. [00:06:33] Speaker 3: So if we don't get some of these data centers that people wanted, I mean, Elon Musk posted on X and, you know, it went up there and it said data centers in space looking pretty appealing right now. Okay. So what does that tell you? I mean, is there any truth to that? I know he's joked about it before. [00:06:49] Brody Ford: No, the joke is that you might need to start finding some new locations. And it's worth noting that a lot of the big projects we all know about, in many cases, the permits are already pretty solid. So I don't expect to see some of these big construction sites going quiet. But if you're a company that is trying to start a project today to launch it in, you know, 27 or 28, that delay might get pushed out. I don't think we're going to the moon, but maybe we're going from Texas to Louisiana. [00:07:18] Speaker 1: Okay. Brody, before we let you go, it's been kind of a seismic week. And I know you're talking to a lot of people across tech. And I'm just wondering what they're talking about amongst themselves, if there is any kind of introspection, because these votes were not just against data centers. They were against big tech. They were against these technocrats. They were against the billionaires that a lot of people are feeling are getting away with whatever they want, with very little repercussions. And this was a way for people to feel like they had control. There was a big part of this vote. How is that being interpreted by the folks who are at the other end of this? [00:07:53] Brody Ford: You're right that this is very much a populist backlash. People are worried that they're getting left behind by AI, and potentially it's going to mess up their local resources in the process. The kind of counterintuitive take I'm hearing from a lot of people in tech is that maybe a lot of this tough talk by politicians isn't actually going to translate into serious headwinds, right? [00:08:16] Speaker 1: So the takeaway is they won't get it done and we can keep doing business as usual? [00:08:21] Brody Ford: That certainly is a takeaway from some people I'm speaking with this week that, you know, at the end of the day, you're a local official, you want jobs. Is there going to be more regulations? Certainly. Is that actually going to disrupt the timelines? Is that going to make you have to really change your song? That's unclear.