The TRUTH about the Finance of AI

I can build that in Texas. I can build that in Jacksonville, Mississippi there. But why if it's such a good business, would you be asking taxpayers would you be asking taxpayers without giving them equity in the company? My job is to create a data center, create 2,000 jobs. I'm going to pay a lot of tax on the profits in your state. But then you're getting a tax break. So that doesn't really make any sense. Only Tucker, welcome to America, buddy. This podcast got me curious about how much in tax savings these companies are actually getting. Here it is broken down in under three minutes. The five core hyperscalers, Amazon, Microsoft, Google, Meta, and Oracle have announced they're planning to spend $800 billion this year. Now one company's spend is another company's revenue, which means local utilities like energy, construction and real estate businesses, chip makers like Nvidia are all benefiting from the massive spend. Who else wanted a piece of the action? And taxes, men. States started to compete to try to ensure that this spend would happen in their communities. Thirty-eight states currently offer dedicated tax breaks designed to track data centers. The states shown in green have no program. The ones in yellow do. And the ones shown in red have become so aggressive that in some cases, they're losing over a billion dollars each year. How is that possible? Well, let's use Louisiana's with Meta's project, Apriarian as an example. Assume a clean $100 billion 2026 capex for 65% of that spend goes to chips and 35% goes to buildings and land. Normally when you buy a product, there's sales tax. And in Louisiana, it's close to 10%. This means a state should have collected roughly $6 billion in initial spend on chips. But the thing is, chips have to be replaced. And Louisiana handed Meta a 20-year exemption to replace chips every five years. They lose out on $6 million every refresh cycle. We have property tax. Each state does this a little differently. But let's assume that normally Meta would have to pay $1.35 billion in property tax. Data center incentive programs often have a percentage off tied to jobs. For Meta, creating 300 jobs gets them 60% off, while creating 500 jobs gets them 80% off. That means they could be saving as much as $1 billion every year as long as the exemption lasts. But that's not all. There are also tax breaks at the federal level. Well, there's no federal sales tax. The spending does shrink the federal tax bill through something called depreciation. The idea is you spend $100 billion on chips and you expect them to last for five years. If you use straight line depreciation, you would then expense $20 million dollars over the five year period. The end result is that for your normal company without the crazy tax breaks, a hundred million in sales and their only depreciation from these chips is 20. So they'd be paying $16 million in taxes that first year. Now quick aside, you will see this impact the company's earnings and stock price. About to tell you the tax breaks, tax books only. So in some cases, when the federal government wants to incentivize people to invest in different things, they will offer something called bonus depreciation. So instead of spreading the huge capex over five years, the result is you pay zero. If you straight line depreciation, you would eventually get the same savings, but delayed. So this is effectively an interest-free loan from the government. The result of the AI companies can use this for things like chips, which partially explains the race to build as quickly as possible, as this law could change with the new administration. The irony is the bill also got rid of many deductions for renewables like solar. As we have a huge need for power and energy, we've disincentivized building parts of critical infrastructure.