The $1.7 Trillion Data Center Bet, and Why Apple is Getting Into the Subscription Game

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Welcome to Office Hours with Prof G. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question for next time, you can send a voice recording to officehoursprofgmedia.com, again, that's officehoursprofgmedia.com, or post your question on the ScottGalloway subreddit, and we just might feature in our next episode. Question number one comes from a listener who e-mailed us. Hi Scott, I'm an ex UK Army engineer officer working on grid upgrades in the Scottish Highlands.

Your No Mercy No Malice episode, 1999.ai has led me to believe that the push on data center construction is ill-advised and will end up with data center developers holding the crying baby with incomplete sites and sunk costs. There's also the question of realistic capacity in the grid and the demand from new building housing and other sectors. Is the model of speculative build of data centers for hyperscalers destined to fall down? Thanks as always for speaking out, swearing, and drinking. Well, I won't stop that. Your ancestral home is proud to call you a jock. Huh.

Well, you oatmeal savage. That's what my father used to call me when he was joking. Some data. Most announced data centers were never real. To build a data center, developer applies to plug into Power Grid and operators get 5 to 10 times more applications than real buildings because they file a whole pile to hedge. Most have no financing, no power deal, and no equipment order, and in some, most are most planned data centers are press releases. Bloomberg expects a third to half of all US data centers plan for 2026 to be delayed or canceled.

Why people seem to delay to scare around AI is the debt. Wall Street's mood has flipped fast. And Bank of America's Investor Survey 45 percent, now called the AI bubble, the biggest risk up from 28 percent a month earlier. The buildout runs on borrowed money right now. One estimate puts the giant's hidden debt at 1.7 trillion that's up eightfold in four years. The scary part is what's not on plain sight here, and that is 800 plus billion is pushed off the books into shell companies so it's hard to see who's going to eat the losses. Plus this debt is backed by chips that can lose value overnight if a better one emerges. A lot of people are equating this to 1999 and there's real parallels here. Ordinary people, in my view, will be the ones left holding the bat. I think there's going to be an AI slash data center bailout from Trump who's bet the entire economy on the AI's or the valuations of AI to continue to be out over their skis. In many states, utilities are guaranteed a profit for building power plants, but the demand never shows. It lands on everyone's power bill. The financing is circular. NVIDIA sells the chips and lends its customers the money to buy them. And so the same dollars keep flowing in between a handful of companies making demand look bigger, artificially bigger than it is.

In some, the end here or the slowdown isn't likely one dramatic bang. It's kind of a slow rolling thud similar to 2002, where the weakest, most borrowed players fall first. Well, big tech survives. So this listener, you're right about the crying baby, and who'll end up holding sort of the over-leverage developers and the rate payers, not the hyperscalers. But my understanding is, you're working on grid upgrades in the Scottish Highlands.