AI's Real Estate Boom

Pricing the Future

The core principle of modern finance is that you pay for a company's current and future earnings. It might seem a little weird, then, that BlackRock is in talks to acquire Aligned Data Centers for $40 billion, when a significant portion of what it is buying doesn't even exist yet.

Aligned is a real estate developer for the AI boom; it builds the massive physical shells that house the computers on which AI runs. Currently, it has a respectable but not enormous footprint of just over 600 megawatts of operational capacity. Its real value, however, is in its pipeline: another 700 megawatts under construction and a stated goal to build out a total of 5 gigawatts. The potential acquisition highlights a dizzying new reality in the AI arms race: the market is no longer pricing companies based on their revenue, but on their future potential capacity. Here is Bloomberg:

As tech companies say they're prepared to spend hundreds of billions, if not trillions, on physical infrastructure for AI, there's growing demand for firms like Aligned that promise to meet those needs. That's true even if most of Aligned's data center capacity – and the revenue expected from it – is still in the planning stages. "They have a lot of planned activity," Ari Klein, an analyst with BMO Capital Markets, said about Aligned in particular. "You're probably seeing companies paying up for that planned activity, or what could come."

This is the new logic of the AI market. The scarcest resource is no longer just the AI chip; it's the "powered land"—physical sites with secured access to the immense amounts of electricity needed to run AI data centers. A company like Aligned, which has already done the hard work of securing the land and the power agreements, has created a multi-billion-dollar asset out of a business plan.

The frothiness is everywhere. Last week, Fermi Inc., a real estate investment trust with no revenue and no tenants, saw its market value top $19 billion in its public debut. Its valuation is based primarily on a non-binding letter of intent with an unnamed potential tenant.

For BlackRock, this is a classic long-term infrastructure play, not a speculative tech bet. It is a "toll road" model for the AI economy. No matter who wins the AI model war, they will all need a physical place to run their operations. By owning the data centers, BlackRock gets to collect "rent" from the entire AI economy for decades to come. The only question is whether the price of that real estate is now based on a future that may not arrive as quickly as the market expects.

The Art of the Stockpile

Ordinarily, when a company is put under crippling international sanctions, its ability to produce cutting-edge technology grinds to a halt. And yet, Huawei continues to churn out its Ascend 910 AI chip, a processor so competitive it has become the centerpiece of Beijing's push for technological self-reliance.

The answer to this puzzle lies not in a secret domestic breakthrough, but in the fine art of the stockpile. A recent teardown of Huawei's latest chip by research firm TechInsights reveals that it is packed with critical, foreign-made components: logic dies from Taiwan's TSMC and high-bandwidth memory (HBM) from South Korea's Samsung and SK Hynix.

This isn't necessarily a sign that sanctions are failing today, but rather a testament to the inventory Huawei has managed to amass over time. The exact "when and how" of this accumulation is murky—a testament to the porous nature of global supply chains. The suppliers themselves, TSMC and SK Hynix, insist they cut off all business with Huawei after the initial US restrictions in 2020. This suggests at least part of the hoard was presciently acquired. But it's also clear that components have found their way to Huawei through less direct channels since. Here is Bloomberg:

While Huawei is working to boost the number of 910C chips made by local partners, the company’s access to foreign goods — stockpiled ahead of, or around, export controls — has been of crucial importance.

In one prominent example, Huawei managed to get millions of dies manufactured at TSMC from an intermediary company called Sophgo that didn’t disclose it would resell the components to the Chinese firm. TSMC cut off Sophgo and reported the incident to the US government, which sanctioned the company. Still, Huawei has been able to use the stockpile of some 2.9 million dies in its Ascend chips...

This reveals the true nature of the tech war. It is a messy, protracted struggle where sanctions are met not with immediate capitulation, but with sophisticated, and sometimes covert, supply chain maneuvers. While Huawei has impressively designed a chip that can compete with Nvidia's offerings in China, its ability to build that chip is a testament to its skill in navigating a hostile global market.

But a stockpile, by its nature, is a finite resource. It is a bridge, not a permanent solution. The teardown also exposes the very components that Huawei cannot yet produce at the cutting edge, with high-bandwidth memory (HBM) being the most critical bottleneck. According to the analyts at SemiAnalysis, that inventory is about to become a major problem. "We expect that China will be bottlenecked by HBM by the end of the year," the firm concluded.

The story of the Ascend 910C, then, is a high-stakes race against time. Huawei's masterful stockpiling bought it a crucial window to operate and innovate while under sanction. The only question is whether it was long enough for China's domestic supply chain to catch up.

The Scoreboard

• AI: Jeff Bezos says AI is in an industrial bubble but society will get ‘gigantic’ benefits from the tech (CNBC)
• AI: SoftBank charts new course in robotics with AI (Nikkei Asia)
• Semiconductor: AI chipmaker Cerebras withdraws IPO (CNBC)