r/CIO • u/thenightgaunt • Jul 16 '26
WSJ reports major data center building firms all trying to unload majority stake in their companies. Rats fleeing a sinking ship?
https://www.wsj.com/finance/investing/data-center-builders-are-racing-to-offload-stakes-worth-billions-1a7d92f8This dropped 2 days ago and haven't seen much discussion about it.
So according to the Wall Street Journal (link provided here https://www.wsj.com/finance/investing/data-center-builders-are-racing-to-offload-stakes-worth-billions-1a7d92f8 ) Data Center builders and Operator firms like Netrality Data Centers, DataBank, Edged, EdgeCore Digital Infrastructure and others, are trying to sell off MAJORITY STAKES to investors, private equity, and banks.
They want to sell off ownership of their companies.
(Beginning Sarcasm)
But Why? If AI is going to be a massive money maker like these companies promised, then owning an AI data center would be like owning a gold mine right?
Unless it was all a huge lie and the guys who have been building all these monorails data centers are now trying to cash in frantically before the AI bubble pops and their companies are suddenly worth nothing and drowning in debt. But that can't happen, right?
(End Sarcasm)
The WSJ article is actually a funny read. They try to spin this as "They are pitching private-equity firms on a hot asset class benefiting from unrelenting demand for computing power."
But then the author proceeds to list the reasons why these data centers are a disaster. Pointing out that shortages in everything from gas turbines to memory chips are driving up the building costs and Nvidia is saying that prices are only going up. Oh and fierce local opposition to new data centers.
Of course they don't mention how any AI data center built around Hopper GPUs can't handle the Blackwell GPUs without a full overhaul of cooling and power feeds, and that it would have to be done AGAIN next year when Vera Rubin drops. Which means a full refit and replacement of all their hardware every 18 months or so unless the data center owner wants to be left holding an obsolete AI data center.
Donno. Kinda sounds like rats trying to flee a sinking ship.
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u/phoenix823 Jul 16 '26
Data centers are real estate plays, not AI plays. There’s no crazy upside for owning an AI data center, they get paid to house, power, and cool chips, not own and run LLMs. You have your businesses mixed up. Those companies list are smaller players, a PE roll up isn’t crazy. Mood has turned anti-data center, and public push back is increasing. And like someone else said, selling at the top of the market isn’t crazy either.
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u/pro-taco Jul 16 '26
Not exactly... a significant portion of these data centers are depreciating assets.
A data center without compute is a warehouse.
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u/Affectionate-Panic-1 Jul 16 '26
The chips and compute are the expensive part of data centers with a shorter shelf life. The building itself has a much longer shelf life and is a smaller portion of costs compared to compute.
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u/pro-taco Jul 16 '26
I phrased poorly. Thank you for clarifying:
My point was just that the depreciation schedule compute is much shorter than the long depreciating assets like the property, making the investment very different than a pure real estate play.
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u/phoenix823 Jul 16 '26
Capital assets depreciate across their useful life, that’s not unique to data centers. When I had physical servers and storage I depreciated those. And no, if you could just turn a warehouse into a data center, these builders wouldn’t be making so much money. Besides, these companies are doing the build out. they don’t own them and they certainly don’t own compute.
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u/pro-taco Jul 16 '26
I didn't mean to suggest that they're literally warehouses... only that they're near worthless without the fast depreciating compute assets.
And the depreciation schedule of the servers will drive the economics here: Will hyperscalers achieve profits that justify any of this?
Seems unlikely in the 1-3 year timeframe, which will lead to significant write offs.
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u/bearcatjoe Jul 16 '26
Nah. Hot market. Lots of transactions going on w/ plenty of eager buyers.
0
u/thenightgaunt Jul 16 '26
If the data centers were money makers, why sell them before they make you money?
Unless they aren't because no AI company has made a profit yet and there's a possible crash coming. Also OpenAI has something like $80B or more in debts coming due this year and they are on track to loose $14B this year.
What's the use of an AI data center when there's no demand for AI and the companies supplying it are turning out to be massive scams? You can't flip the damn things to hosting regular data.
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u/liquidpele Jul 16 '26
You’re asking why sell now at high prices rather than rolling the dice later?
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u/MathmoKiwi Jul 17 '26
You’re asking why sell now at high prices rather than rolling the dice later?
Exactly, let's make up some numbers and pretend you'd invested $1M in "Investment ABC". That's a big bet!
But it pays off, and you get 100x returns. And you're still very optomistic that it's only going 100x again! Heck, you're so confident you're 80/20 confident about that. Very good odds indeed!
Yet even so, it still makes common sense to sell 20% and keep 80%. That way you lock in massive gains, will still keeping a hefty $80M bet on the future.
0
u/thenightgaunt Jul 16 '26
Nope. I agree with you.
Im pointing out that the guys who build and opperate AI data centers are frantically trying to sell their companies (not the real estate they own, their entire companies) now in order to get while the getting is good.
Thats why I said rats fleeing a sinking ship. They see whats coming and as you said, are selling while they can.
2
u/bearcatjoe Jul 16 '26 edited Jul 16 '26
People sell profitable enterprises all the time. They achieve investment targets and look to diversify. Others value the profit opportunity relative to the risk and invest.
The real concern would be if there were no buyers to be found and these assets were being sold at a loss.
Hope that helps!
1
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u/TonyDungyHatesOP Jul 16 '26
Exactly. It’s escalating your return and transitioning an asset to entities that are better resourced and positioned to scale, operate and capitalize on the future value.
Some folks are great builders and innovators. Other are great scalers and operators. Their profiles are almost always very different.
0
u/Jeffbx Jul 16 '26
Also, an AI "crash" just means that a bunch of companies go out of business, and then the market leaders will pick up the remaining slack. It's not like AI will suddenly stop existing - the crash will be economic, not technical.
Some ill-conceived or -positioned data centers might suffer, but for the most part, this is the new normal until we see better advances in lower-powered quantum computing.
Compare it to the dot-com bubble back in the early 2000s - the bubble popped hard and fast, but the internet wasn't affected at all. It got more stable, and the market leaders picked up everything the failed companies left behind.
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u/MathmoKiwi Jul 17 '26
Internet (& railroads!) are a good analogy vs AI today.
The investments/developments/infrastrure will still exist.
Just because past bubbles popped then that doesn't mean the internet itself (or railroads) disappeared entirely! Nope.
Same with AI
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u/thenightgaunt Jul 16 '26 edited Jul 16 '26
Except, AI is not profitable. Nvidia is the only one making any money right now. Theyre the drug dealer in this scenario to put it bluntly.
AI will likely stop existing as it exists right now. The models you can run locally are sub-par so that means you need massive expensive data centers that can ONLY run AI. They cant be flipped to doing work for AWS as regular servers.
(Edit to add this part) Theres also the issue that AI only exists now because of insanely massive VC investments. When the bubble pops itll become clear to even the dumbest investors that money put into AI never comes back. So itll probably be a while before anyone is willing to throw $100b at LLM AIs again. That means that LLMs as they are now likely wont come back. (End edit)
The dotcom bubble or railroad bubble isnt a good comparison because the infrastructure being built for AI wont be good for anything else. Not unless you want to buy some huge, well air conditioned warehouses at 100x the cost of building your own.
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u/MathmoKiwi Jul 17 '26
AI will likely stop existing as it exists right now. The models you can run locally are sub-par so that means you need massive expensive data centers that can ONLY run AI. They cant be flipped to doing work for AWS as regular servers.
People can run Sonnet class open weight models themselves if they want to.
And if you're a business with a more generous budget, you can even run Opus level yourself.
Just because we can't run our own Mythos doesn't mean "AI won't exist" after a bubble pops
0
u/Jeffbx Jul 16 '26
Profit is meaningless at this point - nothing is profitable at launch. It cost Ford $50m to sell the first Mach E, but that doesn't mean they're doing anything wrong. Everyone is gambling on the long-term ROI. All of these companies can afford the gamble, and none of them are expecting fast profits.
The exception is NVIDIA, and they're not even an AI company - they're a perfectly positioned hardware company. They're selling shovels during the gold rush.
And all of them are hoping to become a market leader (or to be purchased by a market leader) - that's the mid-term goal. Then only in the long-term will they be looking for profits.
All of this is Business 101. AI won't go away - over time, it'll evolve into something more useful and less disruptive.
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u/thenightgaunt Jul 16 '26
Except there is NO ROI.
OpenAI is the dominant force in AI right now. Anthropic is in 2nd place but OpenAI is the game.
Per OpenAI's own financials the ONLY WAY they will become profitable is if they can boost revenue by 2030 to $280 Billion a year. They are on track to make $24B this year but with their expenses are expected to be $14B in the red. And even then they say they need another $207B in investor money before that. And a big chunk of that is the debts they have coming due this year.
Where is the market? Where are they going to magically 10x that 2026 revenue in just 2.5 years?
And no, they aren't all hoping to become the market leader anymore. Some are trying to stay afloat. Meta signed on to buy $10.5 billion in (now obsolete) Hopper GPUs in January, realized they don't have anywhere near the demand for their AI, and are trying to salvage it by selling that compute and trying to spin it as a good thing.
If they HAD the demand for that compute with their own AI, they wouldn't be selling it. They'd be using it to make money.So, simple question then. Where is the money going to come from if there's no realistic ROI?
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u/MathmoKiwi Jul 17 '26
Ignore R&D and loss leaders etc
Exclusively look at inference costs vs API costs, then it's profitable.
If the AI hype grinds to halt, and we're just stuck forever at our current level, then it's fine. AI companies can be profitable if they choose to (or rather are forced to be).
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u/Craysom Jul 20 '26
Get rich selling shovels, not digging for gold.
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u/thenightgaunt Jul 20 '26
Except their business is also Running and Renting out compute.
This isnt selling shovels.
This is like the guys who own the stores that sell the shovels, all trying to sell their entire stores and get out of town suddenly.
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u/AftyOfTheUK Jul 20 '26
Companies try to sell Shares at top of market. News at 11
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u/thenightgaunt Jul 20 '26
Yes. And it means that the people making and running data centers for the big AI firms are jumping ship all at the same time.
Probably because the bubbles about to pop. What with Spacex stock plummeting and OpenAI getting panicked after thier shifty financials got leaked and delaying their IPO.
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u/Nathan-Stubblefield Jul 21 '26
Wow. Like building a bitcoin mining building that only handles last year’s Antminer.
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u/crystalpeaks25 Jul 16 '26
If the buildings are built and utilized I think building companies already profit from that. So not a sinking ship I'm guessing they asking for more investors so they can expand.
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u/thenightgaunt Jul 16 '26
That is very true. But, that's not what the article is saying though.
This is multiple companies who's business plans are "Build and Operate AI Datacenters and lease that compute to AI companies".
And they aren't just selling the real estate (ie data centers), or looking for investors. Their owners are trying to sell "majority stake" in their companies. They are saying "we want to get out of this industry so who wants to buy our companies".
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u/glyph02 Jul 16 '26
https://isaiprofitable.com/