NEW YORK, March 20 (Reuters Breakingviews) – The appetite for artificial intelligence is just as big as the tech’s most enthusiastic supporters believe. By 2028, data centers will need around an extra $200 billion in capital expenditures to keep up with the demand, says a report from consultancy Dell’Oro. Equinix (EQIX.O), which handles massive amounts of data for machine learning, stands to gain; their execs brought up AI over 30 times in a recent investor call. Despite a prominent short-seller challenging this outlook and regulators cracking down on some of the hype, it’s gonna be tough to burst this bubble.
A recent bombshell from Hindenburg Research accuses Equinix of inflating its success, but boils down to one claim: they’re selling an “AI pipe dream.” Over the past year, the company’s market value jumped 30% to $80 billion, riding the wave of general excitement. Shares of server manufacturer Super Micro Computer (SMCI.O) have skyrocketed nearly 800%. And Astera Labs, an AI favorite, saw its stock leap almost 50% at its market debut, pricing higher than expected.
The ghost of the dot-com bubble is back, it seems. Torsten Slok from Apollo Global Management (APO.N) points out that companies in the S&P 500 Index (.SPX) are trading at steeper earnings multiples than back in March 2000. The SEC is handing out penalties for “AI washing”—making overblown claims about AI smarts—while the Department of Justice admits to “numerous” ongoing probes into the sector.
Yet, AI does offer amazing potential. The trick is telling the real deals from the duds. Hindenburg suggests Equinix is more an AI casualty than winner. Cloud giants like Microsoft (MSFT.O), Alphabet (GOOGL.O) or Amazon.com (AMZN.O) are building their own data centers and owning more of the market, according to Synergy Research. At the same time, warnings are being sounded about the huge energy needs for data processing, with utilities already straining to keep pace.
But this bad news is also kinda good news. Firms like Blackstone (BX.N) are spending big bucks betting on these power shortages. Still, it doesn’t clear up whether companies like Equinix will feast at the AI table or lose out to the big tech firms when the pressure lets up. Lots of posers will cash in in the meantime. After Hindenburg’s report, Equinix’s shares only fell 4%. It’s another hint that this bubble might deflate slowly instead of bursting outright.
