Insider Finance - Business - Blackstone’s next big bet

Blackstone’s getting in on the AI bandwagon … sort of. 

The world’s largest private-equity firm is going all-in on data centers, writes Insider’s Dan Geiger and Rebecca Ungarino. These non-descript buildings lack curbside appeal, but they’re vital to the AI community as they house critical infrastructure for high-compute needs.   

It’s a classic pick-and-shovel play — a nod to companies that sold tools to prospectors amid the California gold rush. Why worry about building or investing in the next AI chatbot when you can sell companies the tools to do it themselves?

That approach has served Nvidia incredibly well, leading the AI chipmaker’s CEO Jason Huang to surpass Blackstone boss Stephen Schwarzman in net worth. 

It also comes at a critical time for Blackstone. 

The investing behemoth, which recently reached $1 trillion in assets, has historically found success in real estate. But Blackstone has felt the market downturn, specifically via BREIT, its $67 billion real-estate fund catering to small, individual investors.

BREIT, which launched in 2017, has struggled since late last year when anxious investors started pulling money out of the fund. Blackstone, in turn, limited redemptions. Still, the fund saw $9.4 billion in outflows to shareholders who wanted out. 

BREIT holds a sizable chunk in a data center landlord it helped take private in 2021 that executives have big plans for. But it won’t be easy. Blackstone’s not alone in getting in on data centers, as investors have recognized it as a way to get exposure to the AI race.  

There is also a reputational risk from data centers, which use an incredible amount of energy to keep up with the demands of AI. Take Amazon, which is building a data center empire in Virginia capable of using more energy than some major cities.

It will be interesting to see how Blackstone navigates public perception about its data center push. 

The wider PE community has gone out of its way to distance itself from its old reputation of an industry full of cutthroat, sharp-elbowed dealmakers. Blackstone and fellow PE giant Apollo even have an annual holiday video.

But at the same time, Blackstone didn’t hesitate to raise rents and evict tenants when bans were lifted on those practices after the pandemic.

Before the opening bell: US stock futures rose Monday, after ending last week higher as investors brushed off Jerome Powell's warnings of possible rate hikes.

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