In March last year, we reported that OpenAI might be teaming up with Microsoft on a colossal AI supercomputer project rumored to cost up to $100 billion. Then, in January this year, the company formally announced The Stargate Project, this time with SoftBank, Oracle, and MGX, promising an investment of up to $500 billion in US AI infrastructure by 2029.
Now, reports suggest this ambitious project is running into major headwinds, and it seems to be largely thanks to policies set in motion by Donald Trump. Stargate is envisioned as a massive network of data centers designed to power the next generation of AI innovation, potentially becoming the largest AI training facility in the world, meant to secure America's leadership in artificial intelligence and create a supply chain for AI hardware right here in the US. OpenAI manages the operations, while SoftBank leads the financing efforts.
But raising the immense amount of money needed, initially $100 billion "immediately" with plans for half a trillion, is proving difficult. Bloomberg recently reported that financing talks have slowed dramatically over the last few months. Despite preliminary discussions with dozens of potential lenders and investors like Mizuho, JPMorgan, Apollo Global Management, and Brookfield Asset Management, no deals have closed.
The primary issue appears to stem from the economic uncertainty created by aggressive trade policies. Analysts from TD Cowen, led by Michael Elias, point out that tariffs could push data center construction costs up by 5% to 15%, potentially even more for some operators, because components like server racks, cooling systems, and crucial chips face tariff discussions. This rise in capital costs makes potential lenders and debt investors hesitant to jump into such a large, long-term commitment, especially amid fears of a possible global recession hitting data center demand.
Beyond tariffs and general economic worries, financiers are also weighing other risks. The AI landscape is changing rapidly; cheaper models, like those from companies such as DeepSeek, are emerging, raising questions about the long-term profitability of projects tied directly to OpenAI's technology.
Despite these challenges, not everything has stalled. Aspects of Stargate initiated before SoftBank formally took on the financing lead are reportedly moving ahead. Altman mentioned visiting the first development site recently, a large facility in Abilene, Texas, being developed by Oracle. This site is still on track to be a massive AI training hub and a cornerstone of the US supply chain for AI infrastructure. SoftBank is also reportedly looking at other potential sites beyond Abilene.
While raising the required funds is a huge task, especially with SoftBank reportedly planning to provide only 10% to 20% in equity and rely heavily on debt financing from banks and institutional investors, SoftBank's founder Masayoshi Son is reportedly optimistic. He sees the current market challenges as temporary hiccups on the path to massive future AI demand and returns.
On a related note, you might have heard that Apple is looking at a price hike for the iPhone 17, partly due to grappling with increased costs influenced by tariffs on goods imported into the US. And the US and China, just recently, agreed on a temporary 90-day trade war ceasefire, with the tariff rate between both countries cut down to 10% from 125%.
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