The AI boom is facing another supply crunch. This time it’s the amount of capital available to feed Silicon Valley’s endless need for cash

The AI boom is encountering a new constraint: the dwindling funds available to finance Silicon Valley's ambitious endeavors. As hyperscalers confront shortages of chips, materials, and other essential components for AI infrastructure, they find themselves running out of political support as voters question the excessive data center expansion. Consequently, the flow of capital is beginning to dwindle.

OpenAI recently reduced its target for its latest funding round from $30 billion to $20 billion, securing only about $11 billion in commitments, which is less than a quarter of its initial goal, according to the Wall Street Journal. S&P Global also downgraded Meta's credit outlook to "negative" due to negative cash flow and uncertainty surrounding capital expenditure plans. Additionally, a top European bank has reached its borrowing limit in the sector, given its high exposure.

Despite these challenges, analysts predict that hyperscalers will still invest an estimated $800 billion this year and over $1 trillion next year. However, the sector's reliance on external financing is causing concern. Ed Yardeni, a Wall Street veteran, has raised the question of whether there is enough capital to support everyone's ambitious AI spending plans.

Red flags have emerged from various sources, including Broadcom's CEO Hock Tan warning that capital could become the biggest constraint on AI, BlackRock's CEO Larry Fink stating that competition for capital is fiercer than he has ever experienced, and Nvidia's CEO Jensen Huang noting that neocloud demand is overwhelming but capital is scarce.

Tech companies are continuously seeking more funds, as evidenced by Oracle's plan to raise $20 billion through equity and bond issuances, Meta's intention to raise $95 billion in equity, and Microsoft's $25 billion in debt financing.

The sector acknowledges the tighter availability of capital and has taken steps to address the issue. Meta admitted to the "increasingly challenging environment for raising capital" in a recent filing and may need to speed up fundraising efforts. The Special Committee of Oracle also suggested that the company may need to accelerate fundraising before other companies exhaust available capital in the market.

While Wall Street remains relatively selective in funding AI companies, Bank of America sees positive indicators for AI chipmakers in the coming year. However, the federal government's continued deficits, amounting to nearly $2 trillion last fiscal year, add further pressure on the bond market, exacerbating the capital shortage faced by tech companies and their ambitious AI projects.