Alphabet (GOOGL.US) and Blackstone Group LP (BX.US) are encountering significant headwinds in their ambitious artificial intelligence push, as their newly formed cloud computing joint venture grapples with site selection delays for key data centers. The startup, known internally as "Project Braid," was launched with a $5 billion commitment from Blackstone, targeting the lease of Google's AI processors to customers by 2027. However, insiders reveal that the venture stumbled early, with Google having scrapped plans for emerging data center developer Crusoe to build facilities in Cheyenne, Wyoming. After losing confidence in Crusoe's ability to deliver, Google assumed control of the project and has been navigating the process of re-securing necessary permits, with local officials informing residents that the scope of the project would be reduced.

One potential site was ultimately deemed unsuitable due to a lack of appropriate transformers, a piece of equipment that data center builders are currently facing severe shortages of. According to a report from McKinsey & Co., the waiting period for such components now approaches one year. Additionally, some insiders noted that a shift in Texas's stance toward data centers has disrupted other planned projects. Governor Greg Abbott has ordered a pause on new data center developments while the state gathers more information on how developers and tech companies intend to pay for their electricity. This comes as the domestic AI boom collides with tight power supply in established data center markets, and growing political controversy over the impact of these facilities on household electricity rates and the environment has led to the suspension of multiple projects from New York to Seattle.

The backers of Project Braid have been leveraging their networks to identify new locations for the data centers. A source indicated that within recent weeks, Alphabet sought assistance from executives at the new cloud enterprise it partners with, while Blackstone has tapped its own consultants and partners to scout alternative sites. One source said the joint venture between Blackstone and Alphabet has already pinpointed 29 potential locations. In an emailed statement, the venture stated: "Given the higher-than-expected demand for our computing capacity, we are proactively expanding our project pipeline to evaluate a broader range of sites, supporting our long-term expansion plans."

Executives at Project Braid have downplayed these concerns. CEO Benjamin Treynor Sloss commented in an emailed statement: "It is very common for individual potential sites to progress at different speeds," adding that the new cloud enterprise had anticipated this scenario in its planning, holding a "diverse set of options" and making "strong progress." He affirmed that the business remains on track to deliver its targeted 500 megawatts of capacity by next year. Companies are increasingly hitting the physical limits of building AI infrastructure. Organized opposition is pushing policymakers to scrutinize projects more closely, and data centers have become an influential campaign issue ahead of the upcoming midterm elections. A May report from JPMorgan indicated that over 60% of the data center capacity scheduled for completion in 2027 has yet to begin construction, with shortages of switchgear and skilled labor creating further bottlenecks.

Individuals familiar with the matter say that executives involved in Project Braid have accepted that the probability of data center projects being delivered on time has now fallen to 50%, down from 90% just three years ago. This reality could complicate Blackstone's goal of becoming the "world's largest digital infrastructure financier," posing a significant test for its new AI investment arm, BXN1, which originated from a growth-equity-focused business. The alternative asset manager is also diversifying its investments, recently joining others in committing billions of dollars to AI infrastructure in partnership with Nvidia. Meanwhile, Alphabet is working to bring the chips powering its Gemini AI models to a broader customer base while building a hardware ecosystem to compete more effectively with Nvidia. Many of the largest new cloud providers, such as CoreWeave (CRWV.US), run exclusively on Nvidia's AI chips. To maximize its impact, Alphabet needs to expand its Google Cloud data centers and find partners to host its chips. With projected capital expenditures of up to $205 billion this year, the joint venture with Blackstone is a strategic move to limit the direct costs of its AI infrastructure buildout, shifting some spending and risk off the tech giant's balance sheet.