The Times They Are A-Changin’: Is AI Really Worth It?

 

 

 

“Is it worth it A new winter coat and shoes for the wife” (1)

 

 

The true answer to this, is probably, yes, but it depends on how you might seek to utilise it.

AI comes at an eyewatering cost.

Whilst capital markets have been able to absorb their requirements, capital is a finite resource. There is also the unknown unknown, what impact would a liquidity event have?

Equity markets are risk-on, go for it, debt markets are fearful. One will be wrong.

Irrespective of whether the finance comes in equity or debt form, liquidity is what is driving markets, if that ceases, the fun begins.

What might cause a liquidity event? A Trump-induced bump in the US treasury market? A credit loss?

Borrowers are trying to do is diversify risk, but this doesn’t lessen risk, it simply moves it. In this case from the banks to the asset management sector.

An example of this diversification is Nvidia’s $500bn issue which involved not just the usual banks, but also Apollo Global Management Inc., Blackstone Inc., BlackRock Inc., Brookfield Asset Management, Goldman Sachs Group Inc. and KKR & Co.

 

‘Equity markets are risk-on, go for it, debt markets are fearful. One will be wrong’

 

Year-to-date, US tech giants and AI infrastructure developers have issued C.$489 billion in newly issued AI-related debt. Total borrowing, including off-balance-sheet commitments—including un-commenced data centre leases and hidden financing—range from $1.65 trillion to over $2 trillion.

Torsten Slok, Apollo’s chief economist, said that AI-related borrowing accounts for more than 40% of new long-term, investment-grade corporate debt.

They also estimates the “AI ecosystem” could support more than $2 trillion in debt, of which investment-grade markets may be able to absorb less than $1 trillion of that amount through 2030 because of “concentration and ratings constraints.”

The other $1 trillion plus could be filled by private lenders and other financing backed by infrastructure, equipment and individual AI projects. These private deals could offer lenders better protection by tying the debt to specific assets or contractual guarantees, unlike traditional unsecured corporate bonds.

 

‘AI-related borrowing accounts for more than 40% of new long-term, investment-grade corporate debt’

 

In the UK, AI is having a different liquidity event, on current projections we will not have enough water for future datacentres. Quelle surprise!

Datacentres require large amounts of water to cool the densely packed servers, cooling towers, chillers and humidification systems, and indirectly through high electrical power needs.

Water UK, the trade body that represents water companies in Britain and NI, said in a publicly available written briefing to MPs that the government’s water forecasts were “fatally flawed” and “explicitly exclude” datacentres.

It added that the Environment Agency’s June 2025 national framework for water resources also failed to include an estimate of the water demands of datacentres.

The briefing said: “There appears to be an assumption that the country will always have enough water for its economic needs. Nothing could be further from the truth.”

In May, a House of Lords report said England faced a 5bn litre a day shortfall for public water supplies by 2055.

Water UK said datacentres were already being built in water-stressed areas, with >75% in the south and east of England, where millions are already suffering hosepipe bans.

Slough, served by Affinity Water, is a favourite site, and there are C.125 datacentres are proposed or under construction in Affinity’s region.

In May, the company told MPs that some of these datacentres were requesting up to 3m litres of water a day, equivalent to the peak water demand of 3,500 homes. Unless there is a major change in water providers, new datacentre growth in these areas “may be impossible”:

 

“There appears to be an assumption that the country will always have enough water for its economic needs. Nothing could be further from the truth.”

 

“As leakage and demand targets are already very ambitious, the only solution to deliver new supply is to increase the amount of water taken from the environment – which may be harmful – or to build new supplies, and major reservoirs can take 15 years to plan and build.

“Water companies have cut leakage by around 40% since privatisation and plan to reduce it by a further 17% by 2030.”

Greenpeace highlighted the real problem; water companies are wasting 5x more water through leaky pipes than is saved by a national hosepipe ban.

 

‘a party bankrolled by fossil fuel interests will keep denying the climate crisis for its funders’ benefit even when its impacts are undeniable’

 

The Environment Agency currently requires datacentres to use drinking water only. Water UK estimated that datacentres in England use 6.6m litres of drinking water every day. Should the government reach its target of tripling datacentre capacity by 2030, this could increase to 19.8m litres a day.

Jon Chappel, Water UK’s deputy director, said this was “unforgivable” and a “genuine failing of government”.

England’s current water shortfall is 220m litres more a day than was assumed in water forecasts. Water UK said this deficit was currently being met by “accepting a greater risk of environmental harm, and restrictions on water use in the event of drought”.

Water and climate change measures will regress further should Reform ever have a seat in government.

 

‘water companies are wasting 5x more water through leaky pipes than is saved by a national hosepipe ban’

 

In their latest press conference, deputy leader Tice did acknowledge that climate change is “real”, but he continues to say that there is no proof net zero policies would halt it – and to think it can be stopped is “arrogant”.

He continued, telling everyone to stop being all “doom and gloom” about the situation, instead we should be looking forward to better English wine.

Amy Cameron, Greenpeace UK’s programme director, responded to Tice’s arrogance, saying: “Tice’s words show that a party bankrolled by fossil fuel interests will keep denying the climate crisis for its funders’ benefit even when its impacts are undeniable.”

If the laws of supply and demand are correct, it might be cheaper to drink English wine than water!

 

 

“I call this number For a data date”

 

 

Notes:

1. “Shipbuilding” by Elvis Costello

2. “Computer Love” by Kraftwerk

 

Anyone who knows me will understand that I can be a “luddite”.

PC games and social media do little for me. Although, I grudgingly accept that you cannot totally ignore the latter.

When I researched “the initial reaction to PCs”, I found: “When the IBM Personal Computer (Model 5150) launched on August 12, 1981, initial reactions mixed scepticism from tech traditionalists who viewed it as an underpowered “toy” with massive commercial excitement from businesses. Corporate America quickly embraced it as a legitimate office tool once powerhouse software like VisiCalc and Lotus 1-2-3 proved its utility.”

Bonus points awarded to anyone who remembers VisiCalc and Lotus 1-2-3.

Turning to AI, I have always been concerned that it would do to white-collar jobs what deindustrialization did to blue-collar jobs during the 1980s.

There is also the fact that AI further empowers the tech barons, who already have disproportionate wealth and influence.

There is also the concern that the AI build-out puts the US financial system under too much pressure, and one credit event could snowball into a crisis.

Perhaps there is an argument for anti-trust measures to curb this, although it will require a dramatic rethink of US politics before that happens.

There is precedent for this; President Theodore Roosevelt was referred to as a “trustbuster” for his use of the Sherman Antitrust Act to break up harmful corporate monopolies. During his presidency (1901–1909), he filed 45-antitrust suits against major businesses, reshaping the federal government’s role in regulating the American economy.

Examples of this include Northern Securities Company a massive railroad monopoly controlled by J.P. Morgan and others, and Standard Oil.

Whilst the UK is unlikely to be a player in AI we will have our role to play.

Unfortunately, the shortcomings of our privatised water providers are likely to impact the build-out of the necessary data centres.

Of course, there might be a situation where the water providers prioritise data centres over consumers. After all, profits and dividends must come first!

Lyrically, we start with “Shipbuilding” by Elvis Costello, and play-out with “Computer Love” by Kraftwerk

I understand that NHS Water Guidelines recommend adults drink about 6 to 8 cups (1.5 to 2 litres) of fluid daily. As I won’t be able to afford water, I’m practicing with wine. English, naturally!

Philip

 

@coldwarsteve

 

 

Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

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