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Meta is building a $30 billion data center called Hyperion in a rural pocket of northeastern Louisiana. I love that we're covering this. I'm fascinated by this thing. Wailin Wong and Darian Woods of The Indicator explain the unusual financing behind the project and why it is contributing to fears of an AI bubble.
WAILIN WONG, BYLINE: Meta's partner in the Hyperion project is a private credit firm called Blue Owl Capital. The two companies agree to share ownership in the data center. Meta's stake is 20%, and Blue Owl gets the remaining 80%. Dhaval Shah is a director at the credit ratings agency S&P. He specializes in infrastructure.
DHAVAL SHAH: Hyperion data center is key for Meta's AI ambitions, but they want a partner who would share ownership risk with them.
DARIAN WOODS, BYLINE: And most importantly, Blue Owl, not Meta, is the one borrowing most of the money to build the data center. This keeps the debt off Meta's books.
WONG: And how much debt are we talking about? Well, Blue Owl formed a legal entity called Beignet Investor LLC. Beignet Investor sold $27 billion in bonds to Wall Street investors.
WOODS: Blue Owl plans to pay investors back by collecting rent from Meta because Meta is leasing the data center.
WONG: So to recap, Meta will pay rent to use the data center. That rent money flows to Blue Owl. Blue Owl uses the money to pay back bondholders.
WOODS: And this rental arrangement brings us to something that Dhaval says is unique about the Hyperion deal. Meta gets to renew its lease on the data center every four years.
SHAH: The lease terms are unusually short.
WONG: Now, this gives Meta a lot of flexibility. If it changes its mind on its AI plans, for example, it could walk away from Hyperion. But Dhaval says if Meta decides not to renew its lease, Blue Owl will sell the data center. And then if the property doesn't fetch a certain price, Meta will make up the difference.
SHAH: Their risks are covered. If Meta decides to leave, they will get their money back.
WONG: But when there's billions of dollars flowing between companies and through financial markets, well, this is where nervous chatter about bubbles tends to start.
WOODS: And people like Paul Kedrosky are making their worries known. He's a venture capitalist who also advises hedge funds.
PAUL KEDROSKY: There tends to be a great technology story underneath them. They tend to have loose credit. It helps to have, weirdly enough, a real estate component, and it helps to have a government involvement. So the weird thing about this bubble is it's the first bubble in modern U.S. economic history that combines all of those.
WONG: Ah. That's a big - sorry. You gave me a jump scare. That was a big...
KEDROSKY: Yeah.
WONG: ...Statement.
KEDROSKY: I know.
WONG: Other people in the industry say the massive amount of spending on AI data centers and chips is what's necessary for the future and that there's enough demand to justify the buildout.
WOODS: Dhaval Shah at S&P says he considers Meta's Hyperion deal to be a good deal. He doesn't think investors will get burnt, even if this particular project goes sideways.
WONG: Paul Kedrosky, however, is still worried. He says that even if Hyperion bondholders are OK, there are many other investors and debt-laden tech companies who have nothing to do with the Meta deal that might fare worse.
KEDROSKY: The trickle-down effect would be that immediately, we begin to see defaults on some of the more suspect centers.
WOODS: We contacted Meta and Blue Owl to ask them about Paul's concerns, and they did not respond.
WONG: Wailin Wong.
WOODS: Darian Woods, NPR News.
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