AI’s Giant Money Loop Drawing Foreign Cash Like 2008

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0:06 News.

0:08 You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio.

0:15 The other thing that we watch so closely is what's going on in the world of AI.

0:19 Yeah, earlier today we spoke with Gautam Mukunda, Bloomberg Opinion columnist, who wrote about the AI industry who is not ready for this coming crisis. If you missed that interview, check it out on our podcast feed. Now we're following the money. We teased this one with the headline a little earlier today about how AI's giant money loop is drawing foreign cash like 2008. You said, Carol, the year 2008 is one that gets people's attention.

0:41 It does.

0:41 Sean Donnan, it's today's big take. It is one of the most read stories on the Bloomberg terminal. Sean Donnan is a senior writer for Economics for Bloomberg News. Sean joins us this afternoon. Sean, first, I just want to start with following the money. This special report by Bloomberg Economics, understanding statecraft and the role with the investment that's happening from around the world. What did you and the team find?

1:06 Yeah, look, so we were really starting to look at how AI is affecting the flow of capital around the world. And I think what we discovered was that in the world of AI, we think of circular financing relationships between the companies that are involved here in the United States. And we discovered and dove into this other circular relationship, which is between essentially the companies– sorry, the countries and economies– where a lot of the chips and other products and other inputs that are going into data centers as part of the big AI build-out are coming from, and U.S. markets.

1:48 And really what we found is that we have seen this huge build-up in savings as a result of the U.S. appetite for these chips and these huge new pools of capital that have grown up very, very quickly in places like South Korea and Taiwan. and those pools of capital have started to flow back into U.S. markets, particularly U.S.

2:11 equities and AI stocks. And that, for those of us who are old enough and remember the early 2000s and the 2008 crisis, is really reminiscent of the kind of wall of money that we saw in the early 2000s that at the time was coming into U.S. treasuries and helping to drive what eventually became the housing boom and then the subprime crisis.

2:38 So what's interesting is you take us to Virginia and talk about the data center build. And what's interesting is we do wonder whether this build is, there's a promise of profits and returns on investments and so on and so forth. Time will tell, as you know, Sean, whether or not this all kind of pans out. But you do take us to Virginia and what's going on there.

3:05 Yeah.

3:06 So, I mean, Loudoun County, Virginia, which is right outside of Washington, D.C. It's about a 40-minute drive from where I'm sitting now, is really the kind of epicenter of data center land in the United States, if you will. And what's really interesting about Loudoun County, it's a place that started to bet heavily on data centers in 2008.

3:29 As a result of of the collapse in property tax revenues that they saw as a result of the subprime crisis at the time. And they said, hey, we need another revenue sources. And they latched on to data centers. And at that time, it was a huge build out associated with the cloud computing that we've seen. But that has only accelerated as a result of all the demand for compute, as we call it, from AI. And so you have this line that's been drawn from that 2008 crisis to this county that has reinvented itself around data centers and now draws 40% of the tax revenues in Loudoun County, about $ 1. 2 billion this fiscal year, come just from data centers. And they're starting to say, well, hang on a second here. Maybe if there is another crisis

4:23 that comes, and AI is a bubble, and that bubble bursts, we're going to be heavily exposed, and maybe we need to start looking for other potential sources of revenues and to diversify the economy. And a lot of that money that is flowing into those data center projects in places like Loudoun County is actually foreign capital. And it's that money that's coming from out of those big pools of capital that are building up overseas. It's, again, this kind of wall of money that's coming into the U.S.

4:57 Yeah.

4:58 Feeding a big asset bubble.

4:59 It's not just Silicon Valley that could be impacted by an AI bust. It's a much more global thing. I remember being in India during the great financial crisis in December, and everybody's like, none of this is going to touch the emerging markets.

5:11 They're immune.

5:11 Don't worry about it. And we know it impacted the entire world. Sean, thank you so much. Thanks for joining Tim and me. Sean Donnan, the senior writer for economics at Bloomberg News, joining us from the Bloomberg News, Washington, D.C., Bureau of