Has AI gotten too big to fail? How the U.S. government is backstopping the tech boom.

By Christine Ji

Big Tech is betting everything on AI, and it could leave the U.S. government on the hook

Big Tech companies have enjoyed favorable tax benefits at both the national and statewide level for their AI projects.

Artificial intelligence has snowballed from a technological innovation to the growth driver of the entire economy and a national-security interest. Could it be on track to become too big to fail, leaving the U.S. government to hold the bag?

It's certainly a possibility, according to the nonprofit think tank Center for Public Enterprise. In a report this week, analyst Advait Arun wrote that if AI valuations were to sharply correct, there would be widespread consequences that policymakers should prepare for by "developing an investment strategy centered on acquiring distressed energy-infrastructure assets and repurposing them to serve future demand."

Last week, OpenAI's CFO Sarah Friar made, and then walked back, comments about a federal "backstop" for the company's artificial-intelligence infrastructure commitments. While David Sacks, the White House AI and crypto czar, clearly stated in an X post "there will be no federal bailout for AI" in response to the controversy, the U.S. government has intertwined itself with the AI trade and incentivized it in numerous ways. Sacks mentioned that fast-tracking permitting and power generation were key goals for the administration.

Several trillion dollars will be required to fund Big Tech's plans to build AI infrastructure in the next few years. While Wall Street has stepped up to the challenge and is working on financing arrangements through corporate bonds and novel private-credit structures, there's room for the government to step in further, according to JPMorgan analyst Tarek Hamid.

Read: Big Tech needs a staggering $1.5 trillion to fund the AI boom. This is the complex playbook it's using to get it.

"An 'AI arms race' is a very real possibility, if not probability," Tarek wrote in a note earlier this week. "Something akin to the Inflation Reduction Act to help address grid and power modernization with federal support is extremely plausible in our view."

In July, President Donald Trump introduced America's AI Action Plan, a roadmap focused on clearing regulatory hurdles for the private sector's massive infrastructure projects. The administration has also pushed for the development of nuclear-energy solutions to facilitate access to power, which has been a key bottleneck for the development of data centers.

Arun also highlighted the tax implications of the One Big Beautiful Bill Act, which reinstated 100% upfront bonus depreciation for qualifying assets. As a result, Big Tech companies like Alphabet (GOOGL) (GOOG), Amazon.com (AMZN) and Meta Platforms (META) reported a large one-time tax impact to their most recent third-quarter earnings, which reduces their overall taxable income and increases cash flow.

State governments have also provided tax incentives to attract infrastructure investment from Big Tech. Meta's Hyperion data center is currently under construction in Louisiana, where the state government has offered the company a sales-tax rebate on data-center equipment in exchange for providing local jobs and investment.

In a case where AI infrastructure is overbuilt and profits shrink, areas that are data-center hotspots - such as northern Virginia, Texas and the Midwest region - will be disproportionately impacted from a loss of investment and higher municipal financing costs, Arun wrote.

The negative implications would expand beyond infrastructure. Vacant data centers would pose a "severe budgetary threat" to the utilities sector, as "regulated utilities around the country have based their power procurement decisions and rate-setting decisions on data-centerdemand growth," Arun added.

The AI buildout has created a new class of "critical assets," which Arun argued will require "policymakers to manage the boom-bust cycle in a way that preserves crucial investments in recessionary conditions."

Also read: How quantum computing could become the next frontier in national security

-Christine Ji

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11-13-25 1742ET