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Blackstone's AI gold rush

by on30 January 2024

Mega-rich firm is cashing in on the tech revolution

Blackstone, the world's biggest private equity firm, is cashing in on the artificial intelligence craze. After snapping up data centre operator QTS for $10 billion in 2021, the firm is pumping money into one of the top landlords for tech titans like Microsoft, Amazon, and Google.

It is splashing out on huge data centres, on hundreds of acres in Phoenix, Arizona, and other hot spots across the US. These facilities will deal with the vital computing needs of large language models, deep learning algorithms, and other AI applications that need loads of data and processing power.

With AI taking over, QTS has become North America's top provider of rented data centre space. The company has tripled its rented space since Blackstone bought it, and its value has soared to about $20 billion.

QTS plans to double its size again and has already forked out more than $1 billion to buy land to build new data centres in five states.

Blackstone's investment in QTS is part of its broader strategy to ditch its old real estate assets, such as hotels, warehouses, and self-storage facilities, and go for more booming and stable sectors, such as data centers, life sciences, and logistics.

The firm's leading property fund, Blackstone Real Estate Income Trust, or Breit, has flogged more than $10 billion in assets since the third quarter of 2022 and has vowed to spend more than $8 billion to build new data centres through QTS

"Big tech firms are in an AI arms race which we think will be a once-in-a-lifetime opportunity for growth in data centers and is driving huge demand on the ground," Breit told investors

The AI boom, however, comes with a massive environmental price. The data crunch has put pressure on power grids, as data centers gobble up huge amounts of electricity to run and cool their servers. QTS reckons its data centres will use 6 gigawatts of electricity, equal to the needs of 5 million homes

Despite that, the company says it is trying to cut its carbon footprint and use green energy sources, but critics say it needs to do more to tackle the climate impact of its operations.

Blackstone's gamble on AI data centres may be one of its best investments ever, as analysts and industry figures expect a surge of AI investment in the next few years.

Analyst firm Dell'Oro Group said that data center spending will hit $500 billion by 2027 to support AI workloads , while TD Cowen said that around 2.1 gigawatts of data center leases were signed in the last 90 days driven by AI needs - a new record.

But the investment also poses big challenges and risks, as data centres face more scrutiny and regulation over their environmental, social, and governance (ESG) practices.

Last modified on 30 January 2024
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