For much more on AI finance, please join me and my colleague Cory Weinberg at the New York Stock Exchange on Monday, April 27, for The Information’s Financing the AI Revolution forum. Hear from top executives and investors on how the rapid buildout of AI is reshaping tech, finance, and capital markets. Learn more here.It’s hard to overstate how lucky AI developers were that their brilliant technical breakthroughs occurred when the financial system was perfectly positioned to fund their ambitious build-out.Interest rates were relatively low and declining, energy was cheap and the world, including the tech giants, was awash in cash. Some of those factors were shifting before the Iran war, and last week they changed dramatically.In the second week of the war, the economic headlines have been all about oil and gasoline prices. Neither commodity has a direct link to the AI build-out—oil is rarely used to produce electricity, and gasoline costs are rounding errors for data center developers.The second-order effects, though, are significant. Higher oil prices can mean higher inflation, which typically means higher interest rates. Neither one is good for the debt-heavy AI build-out, which would face higher costs and higher interest payments. Higher inflation also dashes hopes that the Federal Reserve Bank will further cut interest rates this year. Investors had expected cuts later this year in the expectation that inflation would ease and the jobs market would weaken further. Now the risk is that inflation will pick up. The labor market has already gotten worse—the U.S. shed nearly 100,000 jobs in February. A prolonged war would slow the economy. The big fear on Wall Street right now is stagflation, where the economy weakens but inflation stays high, limiting the Fed’s ability to cut rates. None of that is good for a huge infrastructure build-out. If the war drags on, the already large U.S. government deficit will increase further, potentially driving interest rates higher.The actual building of AI infrastructure was already facing political and financial challenges before the war started. These will likely get worse. Data centers may not use much oil or gasoline, but consumers do. They also use natural gas, which produces much of the electricity that powers data centers. Consumers already blame higher electricity costs on data centers, so it’s not a leap to see rising fuel prices create more opposition to the AI build-out. Local pushback has made it harder to build data centers in much of the country.The timing for the jump in fuel prices is terrible. The cold winter in much of the northern U.S. has led to spikes in heating bills, further straining household budgets. Home heating costs were already expected to rise 11% this winter, according to the National Energy Assistance Directors Association, and the cold weather pushed them higher still. One of the great ironies last week was that days after President Donald Trump started the war with Iran, he dragged the heads of seven big AI developers to Washington to pledge to keep electricity rates low for consumers. The event was little more than a publicity stunt. Some of these companies, notably Google, Amazon and Microsoft, had already taken significant steps to do that. In a further irony, the companies are defying Trump’s campaign against using renewable energy to power AI. They are using solar, wind and batteries because these are the cheapest and most readily available types of power. (Don’t let the decline in oil prices this week fool you; industry veterans see serious problems ahead if Persian Gulf oil remains trapped.)The financing spigots for AI are still open. Stocks of big AI developers have held up, and initial public offerings for SpaceX, OpenAI and Anthropic still appear to be on track. The main crack in the market has been private credit, where small investors are fleeing big lenders such as Blue Owl and Blackstone. That has little to do with the war: Investors are concerned with both the cost of the AI build-out and the lenders’ exposure to software companies, which they see as vulnerable to disruption by AI. Higher interest rates, though, would strain these funds.The tech giants appear to be more vulnerable to the war itself because of their presence in the Middle East than because of any market turmoil. Drone strikes damaged three Amazon data centers in the region last week and the war could jeopardize some big datacenter projects planned for the region. Despite that, Amazon had no problem selling roughly $50 billion in bonds in the U.S. and Europe this week, and had orders for more, according to Bloomberg. The AI build-out was enabled by a benign financing environment and the tech giants’ deep pockets. So far, those pillars remain intact. But wars have a way of upending the status quo. New From Our ReportersExclusiveOpenAI Plans to Launch Sora Video AI in ChatGPT in Strategy ShiftBy Stephanie Palazzolo and Sri MuppidiExclusiveOpenAI’s Shift to Shopping Apps Faces Even More HurdlesBy Ann Gehan and Sri MuppidiTrue ValueOpenAI’s IPO Hopes Face Skeptical Investor CommunityBy Anita Ramaswamy and Miles Kruppa
What the Iran War Means for the Funding of AI
By Creator Economy
·
·
4 min read
·
737 views
Read in:
aa
ace
af
ak
alz
am
ar
as
awa
ay
az
ba
ban
be
bew
+191 more
bg
bho
bik
bm
bn
brx
bs
bug
ca
ceb
cgg
ckb
co
crh
cs
cv
cy
da
de
din
doi
dv
dyu
dz
ee
el
en
eo
es
et
eu
fa
ff
fi
fj
fo
fr
fur
fy
ga
gd
gl
gom
gn
gu
ha
haw
he
hi
hil
hne
hmn
hr
hrx
ht
hu
hy
id
ig
ilo
is
it
ja
jam
jv
ka
kab
kbp
kg
kha
kk
kl
km
kn
ko
kri
ku
ktu
ky
la
lb
lg
li
lij
ln
lo
lmo
lt
ltg
lua
luo
lus
lv
mai
mak
mg
mi
min
mk
ml
mn
mni-mtei
mos
mr
ms
mt
my
nd
ne
nl
nn
no
nr
nso
nus
ny
oc
om
or
pa
pag
pam
pap
pl
ps
pt
pt-br
qu
rn
ro
ru
rw
sa
sah
sat
sc
scn
sg
si
sk
sl
sm
sn
so
sq
sr
ss
st
su
sus
sv
sw
szl
ta
tcy
te
tg
th
ti
tiv
tk
tl
tn
to
tpi
tr
trp
ts
tt
tum
ty
udm
ug
uk
ur
uz
ve
vec
vi
war
wo
xh
yi
yo
yua
yue
zap
zh
zh-hk
zh-tw
zu
