AI Buildout Risks Shift to Government

The rapid expansion of AI infrastructure is being financed by private credit, with assets that lose value quickly and are leased to a small number of tenants. This creates a risk that could fall on the government if tenants default. Alex Karp, CEO of Palantir, has argued that the state must take on such risks, suggesting a model where private gains are backed by public support. This mirrors the role of mortgage credit after the 2008 crisis, where private financing was supported by public institutions. The shift is evident in the growing use of private credit for data centers, with forecasts indicating $2.9 trillion in global capex by 2028. However, the financial model is precarious, as the value of the collateral—primarily GPUs—declines rapidly, and the tenants' financial stability is uncertain. The Hyperion campus in Louisiana exemplifies this trend, where Meta leases space through a joint venture, with the debt off its balance sheet. This structure allows companies to manage risk while shifting the burden to lenders and potentially the government. As the market moves away from public financing, the risk of stranded assets and government intervention grows, highlighting a potential shift in the financial landscape.