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Charlie Minutella is the Chief Executive Officer of RapidRatings, a leading provider of financial health analytics. What started as a trickle has turned into a rushing river. That's how it always begins when the private sector and government race toward the future together: the Space Race in the 1960s, the Internet Boom in the 1990s and now, the AI Race. And the money is flooding in. With over a trillion dollars today dedicated to building AI infrastructure, and a projected $7 trillion by 2030 according to McKinsey, corporate America has signaled its intent to be AI-dominant. But what does $7 trillion actually buy? Building AI data centers is not as simple as opening ChatGPT and typing, “Build me a data center capable of processing trillions of gigabytes.” A $7 trillion commitment does not mean that AI processing materializes out of thin air. It requires sophistication, manpower, raw materials, expertise, vast tracts of land and tremendous amounts of energy and water. Behind it all are suppliers across every tier, from copper wiring providers to manufacturers of microchips and ventilation systems. So, who are these American suppliers carrying the weight of these ambitious goals? Take a midsized manufacturer in Ohio that produces specialized cooling systems as an example. Thanks to the rapid buildout of data centers in the state, its order book has tripled. But instead of celebrating, the CEO is losing sleep. The company needs millions to expand production capacity, but its longtime bank declined the loan. Meanwhile, its largest client (a Tier 1 contractor) is demanding faster delivery timelines. This scenario may be illustrative, but it’s far from unrealistic. The Hidden Cracks Today, the U.S. suppliers tasked with bolstering the AI vision are struggling. According to findings by my company, a provider of financial health analytics, risk lurks in every corner. Tech suppliers are showing extreme financial distress: 30% of software companies are high-risk. So are 27% of communications equipment makers and 25% of semiconductor manufacturers. Risk in critical energy subsectors exacerbates the problem. A quarter of electrical equipment, appliance and component manufacturers are rated high-risk, as are one-fifth of chemical manufacturers. The data shows that, overall, roughly 1 in 4 suppliers supporting America's AI goals face elevated bankruptcy risk. Today’s suppliers are flashing warning signs. But what happens if you throw trillions of dollars at them? Will the issue resolve itself? We're leaning toward probably not. Stress Testing To test our theory, we stress-tested a scenario in which U.S. suppliers experienced a 50% revenue increase, an assumption based on a plausible high-growth scenario aligned with current investment trajectories and demand forecasts. Conventional wisdom says more revenue equals more success. One plus one should equal two, right? Not quite. Our stress test showed suppliers experienced extreme deterioration as a result of increased revenue. This is largely due to suppliers having to scale up production without the inventory and financial backing to do so. The data in stress testing reflected: • 15% of public companies became more financially unstable under revenue stress scenarios, with a 20% increase in high-risk classifications. • 35% of private companies became riskier, with high-risk categories surging by 47%. • The majority of AI infrastructure sectors showed that over 20% of private suppliers would face becoming high-risk under accelerated demand scenarios. Now we are faced with a dangerous paradox: The very success of the AI infrastructure push could send the suppliers needed to support it off a financial cliff. When suppliers fail, projects stall, timelines stretch and infrastructure crumbles. The Capital Access Crisis The supply chain stress intensifies when considering capital access inequality. Tier 1 suppliers, the household names and direct partners of tech giants, are flush with investment. You can see it in recent moves like Nvidia giving $100 billion to OpenAI and $5 billion to Intel. This creates a financing chasm further down the supply chain. Tier 2 and Tier 3 suppliers, the smaller companies that make parts for the parts, are systematically starved of capital. These companies traditionally rely on bank financing, but lending institutions have become increasingly reluctant to extend credit. Banks face constraints on the amount of short-term loans they can carry, and the manual processes required to sell these loans mean they’re less likely to lend altogether. Filling this void is private capital, but this comes with significantly higher costs and performance conditions. Companies that fail to deliver not only lose access to funding, they become at risk of losing control of their businesses entirely. Signs Of A Supply Chain Bubble? Have we seen this film before? Historical data show we may be witnessing the formation of a supply chain bubble. Bankruptcy filings in 2024 reached near-record levels, with a disproportionate 47% concentrated in energy, industrials and information technology sectors—the very industries bolstering AI infrastructure development. This concentration of financial distress in key sectors should serve as a red flag for investors and policymakers. When supply chains become overstretched and undercapitalized, the resulting disruptions can derail even the most funded initiatives. Worsening The Problem As we know, we’re not living in an economic utopia. Inflation remains high, labor markets are tight, interest rates are bludgeoning bottom lines, and tariffs are adding fuel to the fire. Trade wars also mean that critical exports are harder to come by, contributing to the challenge. What Happens Next? America’s AI commitment is a historic opportunity to cement our technological future. However, this vision requires more than just funding announcements. Policymakers and industry leaders must address the systemic vulnerabilities in the supply chain before they metastasize into economy-wide disruptions. This starts with uncovering the financial disparities of America’s critical suppliers and tangibly supporting them, whether through supply chain financing programs, government loan guarantees, or companies taking action, such as diversifying suppliers and building strategic reserves. The AI race will ultimately be won by whoever builds the most resilient and sustainable supply chain. America’s technological dominance is in the hands of its suppliers; it’s time we support them. The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
