Alphabet Inc. Class C (GOOGL.US), Blackstone (BX.US) AI ambitions thwarted! The joint venture's new cloud enterprise data center has encountered difficulties in site selection, leading to a sharp drop in the probability of on-time delivery to 50%.

Alphabet Inc. Class C (GOOGL.US) and Blackstone (BX.US)s new cloud computing joint venture's major data center site selection project has experienced delays, highlighting the obstacles these two giants face in achieving their artificial intelligence (AI) ambitions. According to reports, the startup, internally referred to as "Project Braid," was launched with a $5 billion investment from Blackstone, with goals of leasing AI processors from Alphabet Inc. Class C to customers by 2027. However, insiders have revealed that the joint venture encountered obstacles early on. Alphabet Inc. Class C canceled its original plan for the emerging data center developer Crusoe to build a facility in Cheyenne, Wyoming, due to a loss of confidence in Crusoe's delivery capabilities. They took over the project and are reapplying for the necessary permits. Local officials have told residents that the project will be downsized. One of the proposed sites is also unsuitable because it lacks appropriate transformers. An insider indicated that data center builders are facing shortages of such equipment. A report from McKinsey & Co. states that the waiting times for relevant equipment are approaching a year. Additionally, some insiders noted that Texas's changing stance on data centers has disrupted other project plans. Governor Greg Abbott has ordered a pause on new data center projects while the state gathers more information on how developers and tech companies pay for electricity. Currently, the domestic AI boom in the U.S. is contending with the power supply constraints of the existing data center market, while concerns about the impact of data centers on household electricity bills and the environment are driving increasingly intense political debates. From New York to Seattle, multiple projects have been temporarily halted due to grid and water resource consumption issues. Supporters of Project Braid have activated their networks to seek new data center sites. An insider reported that in recent weeks, Alphabet Inc. Class C has sought assistance from executives at new cloud companies it collaborates with. Other insiders mentioned that Blackstone has also engaged consultants and partners to find new locations. One insider noted that Blackstone and Alphabet Inc. Class C's joint cloud venture has identified 29 potential data center locations. The joint venture stated in an email: "Given that market demand for our computing capacity has exceeded expectations, we are actively expanding the project reserve to evaluate a broader range of locations to support our long-term expansion plans." Executives from Project Braid expressed that they are not worried about these issues. The joint venture's CEO Benjamin Treynor Sloss stated in an email: "It's very common for individual potential sites to progress at different speeds." He added that this new cloud company has already taken this into account in its planning and has a "diverse array of options," reporting that it is "making strong progress." He indicated that the business is still expected to deliver the target capacity of 500 megawatts next year as planned. Companies are increasingly encountering the physical limits of building AI infrastructure. Organized opposition is forcing policymakers to scrutinize related projects more stringently, and as the midterm elections approach, data centers have become a significant campaign issue. A report from JPMorgan in May indicated that over 60% of the planned data center capacity set to be completed by 2027 had not yet begun construction; shortages of switchgear and skilled labor are also causing bottlenecks. Insiders said that executives involved in Project Braid have accepted the reality that the probability of delivering data center projects on time is now only 50%, down from 90% three years ago. This may complicate Blackstone's goal of solidifying its position as "the world's largest digital infrastructure financier." This will be a test for Blackstone's new AI investment division, BXN1, which evolved from a business focused on growth equity investments. The alternative asset management firm is also diversifying its investment portfolio. Recently, it joined other companies committed to partnering with NVIDIA Corporation to invest billions of dollars in building AI infrastructure. Meanwhile, Alphabet Inc. Class C is attempting to extend the reach of the chips running its Gemini AI models to a broader customer base while building a hardware ecosystem to compete better with NVIDIA Corporation (NVDA.US). Many of the largest emerging cloud companies, such as CoreWeave (CRWV.US), only run NVIDIA Corporation's AI chips. In order to exert greater influence, Alphabet Inc. Class C needs to build more data centers for its cloud operations and find partners to host its chips. Alphabet Inc. Class C expects its capital expenditures to reach as high as $205 billion this year. The company established this joint venture with Blackstone to limit the direct costs of its AI infrastructure development. This arrangement will shift some expenditures and risks off the balance sheet of this tech giant.