Ernst & Young flags Meta's $27B Louisiana data center deal

Meta announced Wednesday it will pour more than $10 billion into a new data center in Lebanon, Indiana, marking another huge bet on artificial intelligence infrastructure even as questions pile up about how the social media giant finances these projects.

The company broke ground on the site that will deliver one gigawatt of electricity to power AI systems and Meta’s social networks. This makes it one of the company’s biggest data center projects ever, alongside its Hyperion campus in Louisiana and Prometheus facility in Ohio. The Lebanon campus is Meta’s second major tech project in Indiana.

Mark Zuckerberg has turned AI into Meta’s top priority and is spending money like water to win what he sees as a critical technology race. Just last month, Meta said it expects to spend somewhere between $115 billion and $135 billion this year on building AI infrastructure—a record amount that makes last year’s spending look small. The company now operates or is building more than 30 data centers worldwide.

At its busiest point during construction, the company expects to have more than 4,000 workers on site. Once it opens, Meta will need about 300 people for long-term jobs. The company also pledged to put more than $120 million into local infrastructure improvements, including roads, water systems, transmission lines, and utility upgrades over the course of the project.

In another update, Meta rolled out a new AI feature called “Dear Algo” on Wednesday that lets people using its Threads app customize what they want to see in their feed. Users can tell the system what kinds of posts they want, similar to how people chat with OpenAI’s ChatGPT.

The company has been pushing AI features across all its apps lately, including tools on Facebook that let users animate their profile photos and change images using Meta’s AI assistant.

Auditor Raises Red Flag on $27 Billion Deal

Last month, Meta told investors it plans to spend between $115 billion and $135 billion this year on AI-related spending, nearly double what it spent last year when it overhauled its AI unit. The company now operates or is building more than 30 data centers worldwide.

Meta’s spending spree is raising eyebrows in Washington and on Wall Street. Meta’s auditor Ernst & Young flagged concerns about a $27 billion data center project that Meta moved off its books last October.

The company created a joint venture with Blue Owl Capital for its Hyperion campus, with Meta owning 20% and Blue Owl owning the other 80%. A company called Beignet Investor sold $27.3 billion in bonds to investors to fund the project. Previous Cryptopolitan coverage detailed how this arrangement allows Meta to control operations while keeping billions in debt off its balance sheet.

Ernst & Young approved Meta’s accounting treatment but called it a “critical audit matter”, audit speak for one of the hardest and riskiest decisions they had to make.

Meta’s $46 billion hidden risk revealed

The auditor said figuring out who really controls the venture was “especially challenging” because it required complex judgment calls about which company has the power to make the most important decisions.

According to Meta’s financial filing as seen by Cryptopolitan, the company put in $4.30 billion worth of assets when the venture started and got back a one-time payment of $2.55 billion. Meta owns 20% of the venture and handles the construction management and day-to-day operations.

But Meta’s financial commitments go much deeper. The company has agreed to rent space in the data centers for about $12.31 billion total, with leases starting in 2029. Each lease lasts four years but can be extended up to 20 years.

Meta has also made financial guarantees worth up to $28 billion. If Meta decides to walk away from a lease, it might have to pay the difference between what the property is actually worth and what it guaranteed to be worth.

When you add everything up, Meta’s ownership stake, the lease agreements, future funding promises, and financial guarantees, Meta could be on the hook for up to $45.95 billion if things go wrong.

Meta says it doesn’t have to show the venture’s assets and debts on its own financial statements because it’s not the “primary beneficiary” of the entity. But that claim is debatable. Meta knows how to run data centers for AI. Blue Owl just provides money. Whether this venture succeeds will come down to Meta’s decisions and know-how, not Blue Owl’s.

Meta is spending so heavily because the AI race feels like an existential fight for big tech companies.   The company believes whoever builds the biggest AI infrastructure wins the market, just as other tech giants are spending hundreds of billions on their own data center buildouts.

If AI companies can’t generate enough revenue to cover their massive debt loads, the fallout could hit everyday Americans. Warren’s letter warned that “destabilizing losses for an interconnected set of financial institutions” could trigger a broader crisis that “crush retirement savers and retail investors exposed to the AI industry.” The senators gave regulators until February 13 to respond.

Meta’s continued spending suggests it believes AI will eventually pay off, but the clock is ticking. With construction timelines stretching into 2028 and beyond, these companies need AI applications to start making serious money before the bills come due.

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