Alibaba's Joe Tsai warns of potential AI bubble
Is "astounded" by scale of new AI data centres in the US.
Are we building too many data centres? Alibaba's chairman today warned of a possible bubble surrounding massive AI data centre buildouts.
As reported by Bloomberg, Joe Tsai of Alibaba alluded to this at the HSBC Global Investment Summit in Hong Kong earlier today.
If it looks like a bubble...
“I start to see the beginning of some kind of bubble,” he said, referring to data centres projects that commenced raising funds without having secured customers.
“I start to get worried when people are building data centers on spec. There are a number of people coming up, funds coming out, to raise billions or millions [in] capital.”
Referring to plans by US tech giants to spend hundreds of billions on AI in 2024, he said: “I’m still astounded by the type of numbers that’s being thrown around in the United States about investing into AI.”
“People are talking, literally talking about $500 billion, several 100 billion dollars. I don’t think that’s entirely necessary. I think in a way, people are investing ahead of the demand that they’re seeing today, but they are projecting much bigger demand.”
Pushback on AI diffusion framework
This comes amid reports of pushback by the likes of Nvidia and Oracle for a rethink of the AI diffusion rule, unveiled in the last week of President Biden's term.
The rule establishes caps on GPUs available for export and is seen as potentially impacting nations in the Middle East and Southeast Asia - including Malaysia.
Given the skewed availability of GPUs to the US under this rule, would a hypothetical burst of the AI bubble impact the fortunes of AI equipment suppliers such as Nvidia?
To be clear, it will only go into effect after 90 days, or May 15, assuming President Trump does nothing at all - which is unlikely.
Change in how data centres are built
As I noted recently, the demand for new data centres has changed long-standing norms in their construction; many data centres are now built ahead of demand.
With new modular construction techniques and expedited approvals for power, data centres in Johor are going from groundbreaking to operational in as little as 12 months.
Moreover, these new data centres are generally much larger than the ones built just 2-3 years ago.
According to Q4 2024 figures from DC Byte, Johor has 4,400MW of data centres in the pipeline. Though this includes those in the preliminary stages of approval, it is a staggering figure nonetheless.
Data centres here are much smaller than those planned in the US. But is a bubble in the making here?