Ben Thompson on the Data Center Backlash, Google's AI Bet and Reddit

Ben Thompson argues that America’s vote against AI data centers will make big tech stronger, not weaker, because only the hyperscalers have the cash, credit and existing sites to build through a bottleneck. In this episode of Sharp Tech, recorded the week of the 2026 midterms, Thompson and Andrew Sharp walk through 43 of 44 local ballot measures going against data center construction, the Texas moratorium, why data centers in space are less crazy than they sound, whether Google’s record stock drop proves the search bears right, Reddit’s traffic problem, and what Thompson calls the group chat era of software.

TLDW

Thompson reads the data center vote as a referendum on big tech’s arrogance, not on water or electricity, and says the industry is about to get the transactional relationship with communities it asked for. The surprising winners of a construction slowdown are Amazon, Google, Meta and Microsoft, which already own sites and borrow cheaply, while OpenAI and Anthropic face a harder road. On Google, he hears the same “build it, scale it, then monetize it” story Facebook told with Stories and Reels, and argues the company is quietly becoming an infrastructure business. The episode closes on Reddit losing Google traffic, the end of the internet as one giant market, and listener examples of small, personal apps built with AI.

Thoughts

Thompson’s sharpest claim is that a public revolt against big tech will hand big tech a bigger moat. If new data centers get harder to build, the advantage goes to whoever already has land, power, permits and a community used to them, and that is Amazon, Google, Meta and Microsoft. They also have three financing levers the AI labs lack: free cash flow (Amazon’s roughly $180 billion still dwarfs anything OpenAI or Anthropic generates), cheaper credit backed by other businesses, and equity that is not a pure bet on one model. Add better lobbyists and deeper pockets to pay off local opposition, and the bottleneck looks like a gift. Thompson goes further and suggests a forced slowdown could be a relief: if revenue catches up with capex before the bills come due, “everyone could win.” The question he raises without answering is who ends up owning the labs. The question “does Google just own Anthropic at some point?” came up half as a joke, but it is the logical end of an argument where compute is scarce and only three or four companies can create more of it.

The Google section is a useful corrective to the week’s panic, with a caveat Thompson supplies himself. Alphabet lost more than $500 billion in a day after search ad growth slowed, and he answers with Facebook’s history. When Stories and then Reels arrived, users stopped scrolling the feed where the ads were, revenue wobbled, and the early advertisers who figured out the new formats enjoyed a huge arbitrage until Meta built the measurement tools. Google is telling the same story about AI Mode: people use it more, ask more queries, and the ads have not followed yet. The difference is that Meta has done this twice and Google has spent 25 years putting ads in the same results page. Thompson also admits his record on Google is poor, telling Sharp to “always do the opposite of what I say about Google.” The more convincing half of his case is the second bet, what he calls the Google Capital Company: search as the cash machine that funds a cloud, chip and data center business, the way See’s Candies funded Berkshire Hathaway’s railroads. In a world where data centers are scarce, that second business may matter more than the first.

The closing stretch on Reddit and “the end of the internet as we know it” ties the episode together, even though it was nearly cut for time. Reddit lost about 30% of its value after admitting Google sends it less traffic, and Thompson calls Steve Huffman’s response a valiant attempt to state reality rather than spin it. The internet was built on one bargain: Google indexes your site and sends you visitors, often monetized by Google’s own AdSense. AI Mode ends that bargain, and every site built on volume has to shrink to logged-in users and earn more from each one. Thompson’s optimistic flip is the “smiling curve”: giant platforms on one end, small high-trust gardens on the other, like a group chat or a paid newsletter. The listener examples land the point. An app that wraps a city’s school lunch menu, a job search tool shared with friends, a three-minute Claude fix for a workflow gap. None of these are businesses at scale, and Thompson says that is the point: AI produces “that many more opportunities for one person companies that are $100,000 businesses,” not a wave of billion-dollar solo startups.

Underneath all of it is Thompson’s diagnosis of why the vote happened. The industry spent a year rebutting claims about water and power bills, and he says that missed the real issue: people were voting on sentiment. Sharp put it as voting “against this version of the future,” and Thompson agreed. When the only message out of Silicon Valley is that AI is coming for your job, the subtext is that most people are worthless, and he connects that to a habit he dates to Wall Street in the 1980s of treating anything legal as acceptable. His prediction follows from it: an industry that ran Amazon-style auctions for subsidies will now pay communities directly. That is fair, but it sits awkwardly with his own Loudoun County example, where data centers lowered property taxes and funded parks and schools. If the benefits are that real, the failure was not only arrogance but thirty years of letting the upside arrive too slowly for voters to see it.

Key Takeaways

Of 44 local ballot measures opposing data center construction in the 2026 midterms, 43 went against data centers. North Dakota was the exception, and several officials who backed projects were recalled.
Texas elected a governor who promised a moratorium on new data center construction until the state legislature, which meets once every two years, can act. Texas had been on track to hold 25% of US data center capacity by 2030.
About 130 Texas projects already under construction continue, so the real squeeze on capacity is expected around 2029 rather than 2027 or 2028.
Thompson says the industry argued facts when voters were expressing sentiment, and that big tech will now have to pay communities directly to host data centers.
Loudoun County, Virginia, is his example of the long-run payoff: decades of data center growth brought lower property taxes and better public services.
Building abroad is the most likely response, starting with Google’s roughly $15 billion data center project in Malaysia. The Middle East looks less safe after attacks damaged a data center there.
Data centers in space are more plausible than they sound because an NVL72 rack is about the size of a current Starlink satellite. SpaceX treats launch capacity as close to free, the same marginal-cost thinking that keeps shipping companies running at an accounting loss.
Hyperscalers win a constrained buildout: existing sites, free cash flow, cheaper credit and stronger equity. Most old air-cooled data centers cannot easily be converted for dense, water-cooled GPUs, but the land, power and relationships carry over.
Nvidia sells fewer chips in absolute terms when construction slows, but when power is scarce the most efficient chip per watt is worth paying a premium for.
Alphabet shares fell more than 13% after search ad sales missed forecasts, erasing more than $500 billion in its biggest ever market drop.
Thompson compares Google’s AI Mode to Facebook’s Stories and Reels: usage moved to a new format before ads did, and he says Google deserves more benefit of the doubt than it is getting.
OpenAI says search-like queries in ChatGPT are now one fifth the volume of Google’s.
Reddit lost about 30% of its value after saying Google sends it less traffic. Thompson expects more logged-in experiences and better ad targeting, with data licensing to AI labs as a durable asset.
Google Play now lets people publish apps to just their friends and family, which Thompson sees as an early piece of the “group chat era” of software.

Chapters

0:00 America Votes Against Data Centers

Sharp opens with the midterm results: 43 of 44 local measures went against data centers, and some officials were recalled. Thompson says the recalls matter more because they warn every mayor and county board. The biggest blow is Texas, where a moratorium ends the industry’s assumption that “we’ll just build it in Texas,” with its cheap natural gas and its own power grid.

13:45 Implications for Big Tech and Beyond

Thompson blames corporate America’s “reduction of morality to legality” and the shamelessness of episodes like Amazon’s headquarters auction. He expects a transactional future in which tech pays communities directly. The pair discuss Loudoun County’s 30-year virtuous cycle, Google’s Malaysia project, and Thompson’s case that data centers in space are viable because SpaceX treats launch as nearly free.

41:50 Why Hyperscalers Benefit from a Buildout Bottleneck

Existing footprints, free cash flow, cheap credit and stronger equity put Amazon, Google, Meta and Microsoft ahead of the frontier labs. Thompson says a forced slowdown could let revenue catch up with capex, which would be “a win win.” He also explains why scarcity favors Nvidia’s most efficient chips and makes existing neocloud capacity more valuable.

55:35 China and the Global Data Center Race

Thompson warns that once China solves its chip problem, it can out-build the US on power and data centers, the way it did in manufacturing. Sharp, who hosts Sharp China, says he is less worried than ever. A listener asks why not build in Mexico or Canada, and Thompson points to globalization, security, and a Middle East data center lost to an attack.

1:00:06 Were Google Bears Right All Along?

After Alphabet’s record drop, Thompson explains his “Facebook deja vu”: users moving to a new surface before ads follow. AI Mode is popular, but the ads still live on the old results page. He describes Google disrupting its own search business while building the “Google Capital Company” around cloud, chips and data centers, and notes Thomas Kurian’s new presence on the earnings call.

1:14:46 Reddit’s AI Problem

Steve Huffman says people still search for Reddit but Google no longer sends them there, and the stock fell about 30%. After a digression on calling it X versus Twitter, Thompson argues Reddit’s posters and commenters are already logged in, so losing the drive-by readers hurts less than it looks.

1:20:06 The End of the Internet as We Know It

Thompson revisits his essay on the end of the internet as one market built on scale. Google’s old deal of indexing in exchange for traffic is ending. Sites built on volume must shrink to fewer, more valuable users, while the “smiling curve” leaves room for small, high-trust communities like group chats and subscription newsletters.

1:27:27 AI Show and Tell

A listener describes small apps built with Claude and asks who will provide payments, login and security for the “group chat of software.” Thompson points to Google Play’s new friends and family publishing and tells MBA students to use AI on their weaknesses, not their core job. He closes by predicting many more one-person, $100,000 businesses.

Notable Quotes

“You’re trying to refute facts when what you’re actually dealing with is sentiment.”
Ben Thompson, on how the industry fought data center opposition

“If you love advertising, you’re optimistic about AI.”
Ben Thompson, on why AI marketing fails to show people what it solves

“You want a transactional model, you’re going to get a transactional model good and hard.”
Ben Thompson, on communities now demanding payment from big tech

“Starlink and SpaceX is the ultimate hammer looking for a nail company.”
Ben Thompson, on why data centers in space make sense for SpaceX

“The analysis in a market defined by scarcity versus a market defined by abundance is fundamentally different.”
Ben Thompson, on what a construction slowdown means for Nvidia

“AI is like a machine gun you can train on your weaknesses.”
Ben Thompson, on his advice to MBA students

Watch the full episode of Sharp Tech with Ben Thompson and Andrew Sharp here.

Ben Thompson on the Data Center Backlash, Google’s AI Bet and Reddit