The Perils of Wall St.’s Race to Pour Billions More Into A.I.
Investors including BlackRock have committed an eye-popping amount to lend to the artificial intelligence industry. That enthusiasm isn’t shared by everyone.
The DealBook Newsletter Our columnist Andrew Ross Sorkin and his Times colleagues help you make sense of major business and policy headlines — and the power-brokers who shape them.
Andrew here. Mark Monday on your calendar. It’s a date we may look back on years from now as either the inflection point in the A.I. boom — or the moment it got so leveraged that a crisis began to form.
Nvidia’s announcement that it was teaming up with a half-dozen Wall Street firms to lend $500 billion for the A.I. buildout adds a huge amount of debt to the A.I. economy. It’s a clever move for Nvidia, which will go from being the de facto financial backstop for the industry (for which it has been criticized) to shifting systemic risk to Wall Street investors.
Whether that’s a master class in balance sheet management or the start of a new credit bubble is the $500 billion question. More below.
The A.I. debt binge
Wall Street titans can’t get enough of the picks and shovels of the artificial intelligence boom, like data centers and chips.
That’s the clear takeaway from the announcement that an all-star group of investors was teaming up with Nvidia for $500 billion worth of funding to help finance the A.I. boom.
But the move comes amid growing signs that many Americans don’t share the financial community’s enthusiasm for the A.I. buildout.
“We need to raise this money as fast as possible,” Larry Fink, the C.E.O. of BlackRock, said on Monday in announcing the initiative. His firm and several other heavyweights — Apollo! Blackstone! Brookfield! Goldman Sachs! KKR! — said that it was imperative to help tech companies amass the resources needed for their A.I. expansion efforts.
The investment firms will dole out the funds via loans, credit and more. (They’ll be available “at attractive rates,” according to Nvidia.)
Other details weren’t available, though the Wall Street firms alluded to “yield-based products” and securitization. Fink said he foresaw “a next future for financial engineering.”
The context: The A.I. boom is already hugely expensive. Morgan Stanley analysts predict that hyperscalers will invest $3.5 trillion into A.I. infrastructure between now and 2028. Model developers are also spending heavily, with Anthropic reportedly agreeing to lease computing capacity from Riot Platforms for $9 billion.
Such investments are increasingly being built on debt, some of which was already being arranged by Nvidia. (The chipmaker has already been accused of arranging circular financing for its customers.)
Investors appear wary. Nvidia’s stock price began falling on Monday after The Financial Times reported on the financing partnerships; it closed down 2.8 percent.
The bigger problem is that many Americans aren’t onboard either. Business leaders have defended data centers as a way to create, in Fink’s words, “a huge amount of jobs.” President Trump has said they’re “tremendous wins” for the communities that host the server farms, citing the taxes and jobs they generate.
But data centers have become politically toxic in many quarters amid concerns about their strain on communities’ energy and water supplies and the deals that companies have struck with local governments to build them.
Those concerns have prompted some companies to step up financial commitments to municipalities where they want to build data centers. Consider Meta’s new fund for supporting local communities, which DealBook hears will start with an initial $1 billion — and is expected to grow over time.
HERE’S WHAT’S HAPPENING
A New York State judge pauses a pied-à-terre tax. The judge sided with homeowners who are fighting the planned tax on some high-end second homes. (The administration appealed the ruling, allowing the tax rollout to continue.) The Mamdani administration is also backing legislation that requires distribution companies to hire delivery workers instead of using contractors, taking specific aim at Amazon.
Anthropic will watermark text and code to comply with an E.U. law. The artificial intelligence giant said the marks would be placed by new models — and eventually existing ones — on content generated anywhere in the world. The move is meant to comply with the bloc’s A.I. Act and is aimed at combating the growing deluge of often misleading A.I. content.
The U.S. suffers its hottest month on record. Temperatures in July averaged 76.9 degrees Fahrenheit, 3.3 degrees above the average for the 20th century, according to the National Oceanic and Atmospheric Administration. The heat’s toll on businesses and households is taxing economies worldwide.
Law firms see big money in the cyclosporiasis outbreak
What was already a nightmare summer for Taylor Farms just got worse. And the lawyers are circling.
The giant supplier of salad and fresh-cut vegetables at the center of the U.S. outbreak of cyclosporiasis said on Monday that it was recalling some products with fresh jalapeños because of concerns about ties to a salmonella outbreak.
Now, personal injury lawyers who focus on food-borne illness cases are targeting Taylor Farms and other businesses whose products have been linked to the outbreaks, Niko Gallogly reports.
Step back: The country is suffering its worst-ever outbreak of cyclosporiasis, a severe gastrointestinal illness caused by a microscopic parasite called cyclospora and spread by contamination from feces.
The C.D.C. said in an Aug. 4 update that it had received reports of 10,468 lab-confirmed cyclosporiasis cases and was aware of another 12,255 cases not yet tested.
Two deaths in Michigan have been tied to the outbreak.
Many of the documented cases have been linked to lettuce distributed by Taylor Farms to restaurants and stores, including Taco Bell and Walmart.
“We have about 450 people that have retained us,” Bill Marler, the founder of Marler Clark, a prominent food safety law firm, told DealBook. All of the firm’s clients have tested positive for cyclospora, Marler said. The firm has so far filed six lawsuits related to the outbreak.
Ron Simon, the founder of the food safety law firm Ron Simon & Associates, said he had taken on north of 1,000 clients related to the cyclosporiasis outbreak.
Big payouts could happen. Marler said he had settled about 500 cyclosporiasis cases over the years for $20,000 to $1 million each, depending on the severity of the illness.
And Simon said settlements for food-borne illness could be as high as $10 million.
The lawsuits are just getting started. Marler said any damages would most likely be paid out by Taylor Farms’ insurance company. He expects that other businesses affected by the outbreak, like Taco Bell and Walmart, will also file claims against Taylor Farms.
“It’s going to be a pretty damn expensive explosive diarrhea outbreak for them,” he said.
Taylor Farms did not respond to DealBook’s request for comment.
Quote of the day
“The tool that we gave our sweat, blood and bones to — it threw us out. After showing our loyalty, the company did not stand with us.”
Rakesh, a 45-year-old engineer in Bengaluru, India, who told The Financial Times that he built artificial intelligence tools for Oracle, only to lose his job. Workers in India’s I.T. consulting sector, a major part of the country’s economy, are increasingly worried that A.I. will wipe out their industry.
Way more cars, Waymo problems
An autonomous vehicle drives over a firework that is about to explode. Or drives into the lane of a highway that’s closed for construction. These are what the autonomous car industry calls “edge cases,” situations that cars haven’t been trained to handle.
Despite Waymo’s safety record, which shows 94 percent fewer serious injury crashes than human drivers, mishaps are piling up as the service rapidly expands, Emmy Martin reports for The Times:
Owned by Google’s parent Alphabet, Waymo has more than quintupled the number of autonomous cars it has on the road to nearly 4,000 today, up from about 700 early last year. Its vehicles are now in 15 metro areas, having gone fully driverless in Denver, Las Vegas, San Diego and Tampa in the past month alone. Each week, passengers pay for about half a million trips.
Amid that growth, Waymo has issued three federal recalls since December for software problems — including one where the cars drove into flooded roadways — compared with three recalls in the previous 22 months. Some edge cases have drawn headlines, including a December power outage in San Francisco that left nearly 1,600 Waymos frozen for at least two minutes.
“This technology struggles to know when it’s in a novel situation,” Philip Koopman, a Carnegie Mellon University emeritus professor who specializes in autonomous vehicles, told The Times. “And when it’s in a novel situation, it’s prone to overconfidence and spectacularly stupid failure.”
Such incidents have put Waymo in the cross hairs of regulators. Mayor Daniel Lurie of San Francisco has asked California’s transportation secretary to set operational standards for driverless cars during major events and emergencies.
Jonathan Morrison, the administrator of the National Highway Traffic Safety Administration, has summoned autonomous car companies to present fixes for autonomous vehicles interfering with the police, firefighters and paramedics.
THE SPEED READ
Deals
Here’s how combining Tesla and SpaceX could help Elon Musk more easily hit a nearly trillion-dollar payday. (WSJ)
OpenAI reportedly bought back $7 billion in stock from current and former employees at an $852 billion valuation. (Bloomberg)
Fenway Sports Group is said to be near a deal to sell a stake in Liverpool F.C., the English soccer club, to an investor group that includes Jeff Bezos. (The Athletic)
Politics, policy and regulation
Kevin Warsh, the Fed chairman, certified that he had sold all the assets he promised to divest to comply with ethics rules. (Bloomberg)
A U.S. federal judge agreed to dismiss several criminal counts against Gautam Adani, an Indian billionaire, but criticized “unbecoming” conduct by a senior Justice Department official who moved to drop the case. (Politico)
Here’s how Texas’ attorney general, Ken Paxton, who is running for the Senate, built up wealth from a cell tower erected at a hospital where he served on the board. (NYT)
Best of the rest
President Trump left Turkey in June via a military jet — after a ruse that involved covertly deboarding Air Force One via a catering container — after a threat from Iran. (NYT)
“Is an Average NFL Quarterback Worth $50 Million a Year?” (WSJ)
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Andrew Ross Sorkin is a columnist and the founder of DealBook, the flagship business and policy newsletter at The Times and an annual conference.
Bernhard Warner is a senior editor for DealBook, a newsletter from The Times, covering business trends, the economy and the markets.
Niko Gallogly is a Times reporter, covering business for the DealBook newsletter.
Brian O'Keefe is the managing editor of DealBook, a newsletter from The New York Times that covers business, policy and culture — and the many ways they overlap.