Joe Tsai ‘Worried’ About AI Data Center Bubble Driven by National Ambitions Like President Trump’s $500B Stargate

Key Takeaways

• Alibaba Group Chairman Joe Tsai has warned about the potential for a data center investment bubble.
• Tsai suggested that some American firms are getting carried away with data center investments.
• Current data center plans are based on projected demand growth driven by AI.

With tech firms around the world investing billions of dollars to build new AI data centers, they risk getting ahead of themselves, Alibaba Group Chairman Joe Tsai warned on Tuesday, March 25.

Tsai suggested that the enormous sums being thrown at AI infrastructure—including a proposed $500 billion U.S. venture known as Stargate—may overestimate future demand.

American Tech Firms Getting Carried Away

During a discussion at the HSBC Global Investment Summit in Hong Kong, Tsai acknowledged that AI growth would require significant data center investments.

Alibaba itself plans to invest over $50 billion in new cloud infrastructure over the next three years.

But compared to figures being floated in the U.S., $50 billion is modest.

“I’m still astounded by the type of numbers that are being thrown around in the United States about investing in AI,” Tsai said.

“People are talking, literally talking about $500 billion, several hundred billion dollars. I don’t think that’s entirely necessary,” he added.

Noting that some projects have started raising funds without securing any uptake agreements, Tsai said he “start[s] to get worried when people are building data centers” based on assumptions about future demand.

But if projected demand fails to materialize, he warned it could cause a bubble effect.

Overcapacity Fears

Although major cloud providers continue to invest billions in new data centers, there are signs that spending may be reaching a crest.

In February, TD Cowen observed that Microsoft had canceled leases equivalent to “a couple of hundred megawatts” of capacity.

The move was the first sign that cloud providers may be weary of oversupply.

However, a face-value assessment based on announced capacity must be tempered with the reality that many projects won’t make it across the finish line.

Hype vs. Reality

Ultimately, some of the most ambitious U.S. investment plans may prove to be hot air.

Although Softbank, OpenAI and Oracle have pledged to invest $500 billion in Stargate, some have questioned whether that figure is realistic.

For instance, Elon Musk claimed “on good authority” that SoftBank has only secured $10 billion of the needed capital.

Meanwhile, in Asia, which is experiencing a data center building boom, Analysys Mason recently published a “data center hype index” to quantify the relationship between announced capacity and the actual capacity expected to be delivered.

The analysis found that builders in Indonesia, Vietnam, the Philippines, and India were unlikely to realize most of the projects that have been announced, suggesting that concerns about oversupply in these markets may be premature.