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Scroll through your news feed on any given day, and chances are you'll spot a headline about a private investment firm fronting an eye-popping sum to develop data centers or the energy infrastructure that keeps them running.
I'm Madeline Shi, and this is The Weekend Pitch. You can reach me at madeline.shi@pitchbook.com or on X @Madelin94615831.
On Nov. 14, Alphabet said it planned to invest $40 billion in new AI and cloud computing infrastructure in Texas by 2027. This came hot on the heels of Anthropic, the creator of large language model Claude, announcing Nov. 12 it will invest $50 billion in new data centers in Texas and New York.
However, as the mania grows, more questions are being raised about the lack of a clear exit path for these massive facilities, particularly those being built to meet technology titans' AI training workloads. While less of a problem for corporates, the endgame is important to the institutional investors that back private equity and infrastructure funds.
So far, few managers and bankers appear to be approaching these projects—some of which cover thousands of acres of rural America—with solid answers.
"Few investors are large enough to buy such mammoth companies or even an individual data center," said Tom Mannion, the global telecommunications leader at accounting and consulting firm BDO Global. "I mean, they are valued in the tens of billions of dollars."
Without viable exits, GPs and their investors could be stuck with a prolonged dearth of distributions or potentially suffer losses if the bets go bad. At best, they will have to juggle the differing and evolving duration expectations of their investors.
Most of the industry today expects to exit their data center investments in between five and 10 years, according to a survey by management consultancy AlixPartners, which polled over 400 PE firms, VC funds, lenders, data center developers and operators, as well as services and component providers, between June and July.
Only around 11% say they plan to hold their data center investments for more than 10 years. That share rises to 21% when it comes to hyperscale facilities—large-scale infrastructure catering to the tech giants—and edge data centers, which are smaller facilities designed to process data locally.
Exit horizons are complicated by the fact that no one can say with confidence whether the returns being underwritten today will hold up.
Overcapacity is a potential risk, with some warning that the industry's frenetic spending on build-out may eventually result in more data centers than needed. |
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Bank of America's November fund manager survey gave some insight on how investors are viewing the AI bubble, including that a majority of respondents believe companies are overinvesting. What percentage believe that the AI bubble is the biggest tail risk to markets?
A) 15%
B) 25%
C) 35%
D) 45%
Find your answer at the bottom of The Weekend Pitch! |
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A selection from the past week's most-read articles.
- Crypto-focused entrepreneurs are shaping up to be among the newest and most innovative players transforming the private fund industry. At the center of the trend: tokenization. Read the full story
- Calstrs is shopping for income-producing investments to speed cash back from its $1.3 billion sustainable PE portfolio. Read more
- GPs have been busy courting the private wealth sector. But those GPs still heavily depend on their traditional investor base. Complete report
- As capital expenditures at tech companies balloon, more investors are asking if AI might not live up to the hype. These charts dig into the AI bubble debate.
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| Wellcome Trust's Geoffrey Love, from left, Leyla Holterud of Vintage Investment Partners, and Speedinvest's Oliver Holle at Slush. (Courtesy of Erica Dezonne) |
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"There's a vast, vast, vast majority of companies out there taking still a very long time to get to scale—and by scale, I mean 500 million-plus of ARR or whatever metric. For most early-stage investors, that means very, very long duration of fund life, so we're talking about 15 to 18 years, right?"
—Leyla Holterud, partner at Vintage Investment Partners, speaking at the Slush startup conference in Helsinki about the boom in secondary transactions. Read more about how VCs and LPs are navigating a new environment where portfolio companies are voluntarily staying private longer. |
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Keep an eye out for these insights and research reports coming out this week:
- Q3 2025 AI VC Trends
- Analyst Note: Global VC Ecosystem Rankings
- Q3 2025 Public PE Roundup
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Answer: D.
Forty-five percent of respondents believe the AI bubble holds the biggest tail risk to markets, and that investors are overinvesting in the category compared to potential returns.
See more data about the survey and read what fund managers are saying about the potential of an AI bubble. |
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This edition of The Weekend Pitch was written by Madeline Shi and Nadine Manske. It was edited by Rod James and Clarinda Simpson.
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