- Analysts predict a second Trump administration will mean more M&A activity for cloud players
- But tariffs could end up raising the cost of cloud services as hyperscalers look to make up the higher cost of imported chips
- Trump's energy policy could also prove key for the sector
More mergers and acquisitions. Higher prices for cloud services. These are just some of the things analysts predict could happen under a second Donald Trump administration.
Under current President Joe Biden, cloud companies have found themselves under intense scrutiny from officials at the Federal Trade Commission (FTC) and Department of Justice (DoJ). But that could soon change.
The FTC is currently chaired by Lina Khan, who has vigorously used the agency’s power in recent years to investigate and enforce antitrust rules. Khan notably spearheaded probes into cloud competition as well as the competitive landscape in the generative artificial intelligence market.
But Trump’s return to the White House means – as Elon Musk so delicately put it last month – Khan “will be fired soon.” That’s because the president has the privilege of appointing a chairperson to lead the five-member FTC. Trump will also likely install new leadership at the DoJ, which works with the FTC to enforce antitrust law.
The DoJ and FTC just put out fresh merger guidelines at the end of 2023, but it’s likely a new Trump administration would scrap those.
“For cloud players, given the predilection of GOP policies to be more permissive around M&A, and perhaps less immediate regulation around AI, I would expect more leeway for cloud players to grow in unique areas acquisitively (likely in the AI/GenAI space),” AvidThink Founder Roy Chua told Fierce by email.
Jack Gold, founder of J. Gold Associates, agreed. “It’s very likely that in his next administration, the FTC is going to be very much less aggressive going after partnerships, going after acquisitions,” he said. “That means that there could very easily be some pretty significant acquisitions in the cloud space.”
For instance, Gold said a hyperscaler could decide to acquire ChatGPT creator OpenAI outright. Or perhaps Microsoft, which has a deal in place to purchase GPU capacity from AI cloud specialist CoreWeave, decides to just buy the company instead.
Ritu Jyoti, GM and VP of AI and Data Market Research and Advisory Services at IDC, similarly said Trump’s administration is likely to take a softer stance than the Biden administration on antitrust, allowing Big Tech to further consolidate. “Lawsuits against major players like Google and Apple may continue, but Trump’s view on mergers and acquisitions could enable corporate giants to expand without much interference,” she told Fierce. “Yet, a narrow market diversity could make it harder for smaller companies to compete.”
Tariffs
Chua added that given Musk’s relationship with and influence on Trump, he expects “an ongoing expansion of data center and AI infrastructure, in support of AI, cloud [and] crypto workloads.”
Why is Musk interested in data centers and AI infrastructure policy? Well, his company xAI has built a supercomputer cluster that is running 100,000 Nvidia GPUs to train large language models. And it is working toward doubling the number of GPUs in its AI data center to 200,000.
But there’s a hitch.
As Gold noted, “everybody today makes chips overseas.” That’s a problem given Trump has promised to implement tariffs of 10-20% on all imports.
So, for instance, if each Nvidia chip costs $30,000 and there’s a 20% tariff, cloud providers are going to end up paying an extra $6,000 per chip. For a cloud provider building a new AI data center with a 200,000 GPU cluster, that would add more than $1.2 billion to the cost, Gold explained.
Of course, cloud providers aren’t just going to swallow that cost. They’ll pass it on in the form of higher costs for their cloud services, Gold said, which is bad news for enterprises. Even if they decide to build their own data centers, enterprises will still run into the tariff issue when buying their own servers, he added.
Power policy
Trump’s administration is also likely to change energy policy, another key area for data centers.
As National Rural Electric Cooperative Association CEO Jim Matheson noted in a statement following the election, “Critical generation resources are being retired faster than they can be reliably replaced. At the same time, electricity demand is skyrocketing as power-hungry data centers and new manufacturing facilities come online. Smart energy policies that keep the lights on are more important than ever.”
The president-elect has promised to “slash the red tape” and approve new energy generation projects to fuel “these new industries that can only function with massive electricity.” In a podcast with Joe Rogan, Trump expressed concern about the dangers of nuclear plants that are too complex, but praised France’s model of building “small little compact plants.” It wasn’t entirely clear if he was referencing small modular reactors or not.
Despite the qualification, Gold said Trump is likely to loosen up nuclear regulations, which would be a boon for energy-hungry data centers.
Check out all of our coverage on what the election means for the regulatory landscape here.
Reporter Julia King contributed to this story.