Blackstone's leaders held to their core convictions around artificial intelligence even as securities analysts peppered them with questions in last week's earnings call, queries that reflected rising concerns about how much longer investors can provide financing for the technology's breakneck expansion.
The executives led by Stephen Schwarzman, the firm's chairman and chief executive, stuck to their guns in backing the substantial bets Blackstone has made on AI. But they also responded to questions about AI-related risks more frequently than they have in previous calls and detailed the firm's steps to mitigate potential financial hazards.
"We've seen an increased focus in the market on the sustainability and risks of AI-related investment, the significant financing needs of companies involved in the AI build-out in the context of higher interest rates, and the levels of [asset] valuations," Schwarzman said during the call Thursday.
Building out global data center and AI computing capacity will require about $800 billion in capital outlays this year, PricewaterhouseCoopers estimates. Sector financing is expected to rise to $1.8 trillion annually by 2050, mainly to upgrade processors, PwC said in a September report. Around 48% of the future investment is expected to flow into the U.S.
Meanwhile, investors are increasingly concerned about the ability of some AI-related companies to service their rapidly accumulating debt, particularly data-center operators and providers of computing capacity known as "neoclouds." Bonds issued by companies such as CoreWeave, a neocloud, sold off sharply in recent weeks.
Blackstone in recent years has become one of the world's largest investors in AI-related infrastructure, with data-center holdings alone totaling $185 billion at the end of June, while also investing in various other corners of the industry.
The New York firm has backed the development of large language models used for AI inference engines built by companies such as Anthropic, maker of the Claude system, forming a joint venture with Anthropic to help other businesses, including Blackstone's portfolio companies, adopt the technology in their operations.
Blackstone has also struck large deals with makers of microprocessors used in data centers, joining a handful of other firms in August to commit more than $500 billion in financing for chip maker Nvidia's customers as they draw on AI computing power in coming years. On Monday, Blackstone and three investment banks said they would provide $63 billion to finance chip maker Broadcom's supply of new AI computing capacity to Anthropic. Blackstone ended September with $1.368 trillion in assets.
The firm's large war chest and broad presence in the AI industry put it in a better position to capitalize on the technology's expansion even as other investors reach their limits, Blackstone's leaders said on the call. Here are other factors they cited as reasons for remaining bullish on AI.
Rising AI usage
"Demand for compute [capacity] is accelerating and we see no signs of that slowing down as AI use cases ramp for both businesses and consumers," Schwarzman said. "At the same time, there's a critical scarcity of supply that is only intensified."
He added that some data-center investors might not have sufficient capital and some projects could fail to secure permits, equipment or electricity supplies, but Blackstone's disciplined approach helps it overcome such risks.
"Overall, we keep coming back to the fundamental supply-demand imbalance, which supports our conviction that this is the right place to invest significant capital," he said of the technology.
Rising value of computing capacity
The cost of capital for publicly traded computing-capacity providers has risen, but it has had limited impact on the valuations of Blackstone's data-center holdings, according to Jonathan Gray, Blackstone's president and chief operating officer.
"There's a little bit of an impact obviously on the present value of stabilized assets," he said. "It impacts the multiples a bit."
He added, however, that the main question hanging over neoclouds is their ability to fulfill their promises to users rather than the value of computing capacity, which is expected to increase as investors and lenders recognize its importance. He compared the rapidly developing AI market powered by data centers with the development of the U.S. commercial-aviation sector, where lenders' focus shifted over time to the value of aircraft assets over the creditworthiness of the carriers borrowing their money.
He noted that computing-capacity prices rose 50% in the past year alone and that previous generations of microprocessors didn't become obsolete as fast as some industry observers had expected.
"Today, when it comes to compute [capacity], be it data centers or chips, people are not putting much value on the underlying assets; they're solely looking at the credit [ratings] of the counterparties," Gray said, referring to data-center users. "I think that will evolve over time."
Long-term contracts
During the call, Gray repeatedly emphasized that Blackstone's data-center holdings are mostly tied to 15- to 20-year contracts with large tech company users, "with an average market cap of $2.5 trillion."
"The fact that we wait till we have these long-term contracts before we put the vast majority of capital in the ground, that seems to be a very disciplined approach to deploying capital," Gray said. "When we think about risk, that doesn't feel particularly risky to us."
Blackstone shares jumped about 8.3% to close at $118.75 Thursday following the call and ended higher Monday at $119.06.
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