$14 billion landed at the Texas Data Center Campus! Meta (META.US) takes on asset management giant BlackRock (BLK.US) to launch another AI infrastructure arms race

The Zhitong Finance App learned that on Tuesday, Meta Platforms (META.US) and the world's largest asset management giant BlackRock (BLK.US) jointly announced that the two sides will jointly develop and operate a data center park in El Paso, Texas. The overall development cost of the project is about 14 billion US dollars. Recently, BlackRock completed pricing for a $12.5 billion bond tailored for the data center, marking the basic settlement of the funding puzzle for this major AI infrastructure project.

According to the two parties' disclosure, BlackRock's fund will hold 80% of the shares in the joint venture project, while Meta will retain ownership of the remaining 20%. To match this shareholding structure, Meta will receive an additional $1 billion in cash allocations.

In terms of assets and capital investment, Meta will contribute about 2.3 billion US dollars worth of land and construction assets; BlackRock will provide about 4.9 billion US dollars in cash. A significant portion of BlackRock's corresponding investment will be settled through external debt issuance through its special purpose carriers — that is, the recently completed $12.5 billion debt financing. Morgan Stanley and J.P. Morgan Chase acted as Meta's financial advisors in this transaction, and also co-underwrote BlackRock's bond issuance.

Details of the $12.5 billion “Sopaipilla” bond issuance

The bond was issued by BlackRock's affiliate “Sopaipilla Investor” (the name is taken from a deep-fried dessert in the southwestern United States, continuing the naming style of Meta's Louisiana data center project “Beignet” bonds). The maturity date of the bond is 2048, and the final price is 2,875 percentage points higher than the yield premium on US Treasury bonds for the same period. This is basically the same as the price guidance initially released to the market, and it is rare for investment-grade bonds to narrow the issuance rate.

People familiar with the matter revealed that the final scale of bond issuance was about 273 million US dollars higher than initially anticipated, and prices rose in early Monday trading in the secondary market, showing signs of recovery in investor demand after experiencing an earlier lackluster reaction.

However, judging from the subscription situation, this offering attracted a total of about 20 billion US dollars in orders, which is only 1.6 times the amount issued, far lower than the amount of oversubscription that borrowers usually pursue, reflecting that the current market's enthusiasm for large-scale AI infrastructure financing has clearly cooled down from before. In contrast, the current transaction yield premium for the “Beignet” bond issued in October last year to finance Meta's Louisiana data center is lower than the spread of the current “Sopaipilla” bond issuance.

Judging from the product structure, this bond is closer to a project financing loan: issued by a special purpose company, the principal amount is repaid in installments, and the source of repayment is entirely dependent on Meta's long-term lease commitment to the data center. This off-balance sheet financing arrangement not only eliminates the need for Meta to directly incorporate huge liabilities into its balance sheet, alleviating market concerns about excessive borrowing, but also because it is essentially a credit endorsement by Meta, making investors relatively at ease with underlying risks.

Implementation of 1 gigawatt of computing power and 600 billion AI blueprint

The El Paso Data Center Park is located near the border between Texas and New Mexico. Construction has now begun, with a design computing capacity of up to 1 gigawatt. It is designed to support Meta's AI computing power requirements and core business operations. It is expected to be officially put into operation in 2028.

Meta has previously disclosed that the project has invested more than $10 billion and is one of 28 data centers that Meta already operates or is building in the US.

According to plans previously announced by Meta, the company will invest up to 600 billion US dollars in data centers by 2028 to accelerate research and development of “personal superintelligence” (Personal Superintelligence) related technologies, and it is hoped that this will open up new sources of cash flow for Meta AI applications, image-to-video advertising tools, and smart glasses.

In addition to El Paso, the company is also building several gigawatt data centers in rural Louisiana and other places. Among them, the long-term planned capacity of the Louisiana project will be expanded to 5 gigawatts, and the total investment is expected to exceed 50 billion US dollars.

Market sentiment is delicate, and the financial report test is imminent

However, behind tech giants scrambling to seize the high ground of AI, Wall Street scrutiny is becoming more and more calm. As large-scale AI spending continues to drive up capital expenses, Meta's stock price has fallen by a cumulative total of about 10% since this year.

Although this debt financing of up to $12.5 billion was designed to mitigate the financial impact, there is still a strong sense of wait-and-see in the market — investors are not only feeling pressure to absorb the endless amount of giant bonds, but are also more concerned about whether Tianliang Data Center investment can actually generate considerable returns in the future.

Meta will announce its second-quarter earnings report after the US stock market on July 29, EST. At that time, further details and guidelines surrounding AI input and output are expected to be a key window for testing market confidence.