Markets may be overpricing a data-center crackdown

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 30:40

   So it seems as though investors basically believe that this blue wave, this blue tsunami, essentially means that we're going to have very stringent regulation on data centers, or at least data center construction is going to be significantly slowed down. Neoclouds have sold off massively. All of the names whose only business is to build data centers, they are plummeting right now. Interestingly, big tech did not, and it seems as though investors believe that maybe they'll have a competitive advantage over the neoclouds now, or maybe just that this means that they'll stop spending crazy amounts of money on these data centers, and maybe that's a good thing because it sort of de-risks their businesses, unless you disagree with my characterization of what's going on in the markets right now.

2. 31:30

   I think your characterization is spot on, and I find it fascinating, right? It expresses a bet that there will be stringent regulation on building new data centers, that that capacity will be curtailed, but that there won't be regulations that impact the profits of the tech companies and the AI companies. That's interesting, right? That is a bet that what voters were expressing and then what the electeds will follow on with is just on data centers. I don't think that matches what I'm hearing from voters. And I also don't think that that matches what electeds have been talking about and what their incentives are when they're thinking two years down the road.

3. 32:11

   Now, perhaps there's another nuanced level of that, which is much of the regulation that's been proposed around AI that isn't data centers doesn't actually restrict profits all that much, right? What's being proposed has been tremendously light touch. Even having third-party auditors, all the companies have said they want to do, so maybe that is priced in. I mean, I remember this when it was fights about the Rays Act in New York, where we had intense lobbying against it but the trade organization that was fighting back said that it would cost and right the group that has every incentive to say this will be a crushing overreach a crushing burden on business uh that trade Associations said it would cost Meta and Google and OpenAI, these massive companies, would cost them one full-time employee to comply with. So maybe this is the market recognizing that even

4. 33:02

   if regulation is coming, it's not really going to threaten profits and there's room for government to take action here. Based on the investors' reaction here, it seems as though they believe, investors believe, Wall Street believes, that data centers are essentially going to be gutted. I mean, it's a pretty strong reaction that we're seeing. And I imagine you are kind of the face of this movement in a lot of ways, certainly in New York. And I would imagine that people see you as someone who says, data centers should just disappear, they should go away.

5. 33:40

   And I wonder if maybe Wall Street investors are overreacting to the extent to which data centers will be disrupted, or the build-out will be disrupted. To me, it seems like actually a lot of these newly elected Democrats are pretty reasonable in suggesting maybe we pause this amount of capacity here until we have a framework in place, which maybe could take less than 12 months. Would you agree with that characterization that maybe they're too concerned that we're going going to have this giant crackdown that's going to kill the data center industry?

6. 34:19

   I think that's right. Certainly, there's a spectrum. And some of the people who were elected yesterday on both sides of the aisle just want there to never be another data center or even to walk back, right? I'm not going to say that those voices don't exist. But yeah, I think most of the people who have, even those who have advocated for a pause, it's been just that, a pause. Let's get reasonable regulations in place. Let's pass laws that say how it needs be treated. Even where we started this conversation with Governor-elect Hinojosa, her two-year moratorium was, and these specific regulations need to be put in place before we renew any new ones. So there will still be room to grow the data centers. Now, maybe some of these companies are so highly levered that any threat to them, any delay could have larger business impacts. But this is

7. 35:08

   not the end of building data centers in the U.S. It's just maybe entering a mode where they're a little more regulated. Alex Bores is a New York State Assemblymember and author of The Raise