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Blackstone does not expect growing competition to drive down returns on its new investments in AI infrastructure, at least not anytime soon, said COO Jon Gray.
Speaking during the firm’s Q2 earnings call, Gray said demand for data centers, chips and the power to supply them is so great that the risk of oversupply and a subsequent collapse in valuations is minimal.
“It’s very hard to get the chips today, it’s very hard to get the power, it’s very hard to get the entitlements [to build data centers],” he added. “That means the supply is not matching [demand].”
Data centers are sufficiently large and complicated to build that you don’t see what Gray described as a “Miami condo effect,” where developers speculatively build capacity in the hope of finding a buyer.
Blackstone has the land, power and permissions to accommodate an estimated $200 billion in new data centers, Gray said.
“It’s a very different dynamic than typical investment cycles … where something generates very high returns and then you get an enormous supply shock coming back the other way, which drives down returns,” he said.
Gray’s comments come amid signs of cooling in the AI infrastructure boom.
The PHLX Semiconductor index, which tracks the aggregate share price of semiconductor manufacturers, is down by around 16% from its June 22 peak, after climbing nearly 99% in the six months leading up to that point.
Meta and SpaceX have both agreed to rent out their computing power capacity to other hyperscalers. While “a weak signal” in itself, such deals “signal overcapacity in the near term,” Aswath Damodaran, professor of finance at New York University’s Stern School of Business, told PitchBook earlier this month.
The exits of AI and energy assets drove a 27% increase in net realizations for Blackstone in Q2, compared with the same period last year, helping boost the firm’s distributable earnings by 26% to $1.98 billion.
Blackstone realized $11 billion in investments in its corporate PE portfolio, including the sale of a control stake in Sabre Industries to the impact investing arm of TPG. Texas-based Sabre designs and manufactures electrical transmission and distribution infrastructure for the power utilities, data center and telecom sectors.
The firm’s real estate portfolio produced $6.6 billion in realizations during the quarter—including the sale of three fully leased Northern Virginia data centers to Digital Realty Trust for $3.5 billion in cash and shares.
Gray said Blackstone is attracting strong interest from buyers for its AI and AI-related businesses, and fairly strong interest for AI-resistant businesses, in sectors such as fast food and medical supplies.