OpenAI cuts funding target to $20 billion from $30 billion

The cut in OpenAI's funding target is the clearest sign yet that the AI industry's money pipeline is narrowing. Hyperscalers have already been dealing with shortages of chips and other physical inputs, but the new constraint is financial: Wall Street is showing less appetite to fund every ambitious plan. Beyond OpenAI, credit rating agency S&P Global cut its outlook on Meta to "negative" from "stable" late Friday, citing negative cash flow and uncertainty around capital expenditure plans. Meanwhile, the head of technology, media and telecom lending at a large European bank told Bloomberg that the bank is approaching the limit of what it can lend to the sector.

The demand for capital keeps rising even as supply tightens. A handful of hyperscalers are expected to invest $800 billion this year and more than $1 trillion next year. To justify those outlays, Gartner estimates data center owners need $8.5 trillion in cumulative revenue by the end of the decade, while the data centers are expected to generate no more than $3.6 trillion in enterprise and consumer AI revenue by then. That gap helps explain why tech companies keep going back to the well: Oracle plans to raise $20 billion by issuing stocks and bonds, Elon Musk said SpaceX closed $40 billion in debt financing, Meta announced plans to raise $95 billion in equity, and Microsoft raised $25 billion in debt.

Investors may grow more selective rather than shut off entirely. Bank of America analysts said capital remains ample for investment grade firms and projects backstopped by suppliers, though such "circular" deals have drawn more scrutiny. As Apollo chief economist Torsten Slok put it, "at the moment we have a shortage of capital, and we have an abundance of good ideas that we need to invest in."