US private equity firms have invested billions of dollars in data centres serving ByteDance, the owner of TikTok, creating a lucrative business that is now facing challenges due to a US crackdown on Chinese companies’ access to advanced chips. Prominent groups such as Blackstone, Bain Capital, Warburg Pincus, and General Atlantic have backed data centre companies running operations in Malaysia that serve ByteDance, although it is unclear whether these facilities are being used by the Chinese firm to exploit a legal loophole in accessing high-end Nvidia chips.
According to Financial Times, the core of this arrangement lies in Chinese companies being unable to buy Nvidia’s top-performing chips directly since 2023. However, they can still gain access by renting space in data centres located overseas, particularly in Malaysia, where third-party companies own the chips. This loophole, which allowed ByteDance to enhance its AI capabilities, is set to close in May 2025. New US regulations will ban Chinese companies not only from owning such chips but also from using them to train large language models, which could be transferred back to China.
In response, industry executives have pointed out that private equity-backed data centre operators often have limited knowledge of the exact use of their rented space. “We have no visibility or influence on the servers and equipment that our customers install in the data centres,” noted a representative of Princeton Digital Group, backed by Warburg Pincus. This lack of control and visibility is a common sentiment among buyout groups, who generally focus on the physical infrastructure, such as the buildings and cooling systems, rather than the chips or servers inside.
ByteDance has increasingly relied on data centres outside China, particularly in Malaysia, to power its growing AI efforts. The company plans to invest $12 billion in AI infrastructure this year, with nearly $7 billion earmarked for spending outside China. However, these new US regulations could disrupt such plans, impacting the growth prospects of ByteDance and the private equity-backed data centre companies.
These developments highlight the complexities of investing in the data centre business, especially as geopolitical tensions and technological restrictions increase. Financial Times reports that the buyout groups’ investments could be impacted by these new rules, as ByteDance and other Chinese companies may be unable to access Nvidia’s chips at the same scale, which would reduce demand for certain data centres. Yet, the high global demand for data centres might mitigate these potential impacts, especially as the AI boom continues to drive growth in internet usage.
While private equity firms have attempted to distance themselves from the controversial business of chip supply, the tightening regulations could still affect their investments. Blackstone and General Atlantic, for example, have declined to comment on the issue, while Bain Capital reiterated that its portfolio companies comply with all relevant laws and regulations in the jurisdictions they operate.
ByteDance remains a crucial tenant for several data centres in Malaysia, including those operated by companies backed by Bain Capital, Blackstone, and General Atlantic. As the rules set to take effect in May 2025 loom, there is uncertainty about how ByteDance will adapt to these changes and whether it will be able to continue accessing the best Nvidia chips for its AI ambitions.
While US private equity firms have made significant investments in the data centre industry to tap into the growing demand for AI infrastructure, the sector now faces a critical challenge with the impending regulatory changes. ByteDance’s reliance on these facilities, particularly in Malaysia, will need to evolve in the face of stricter chip access rules, raising questions about the future of these investments and the broader data centre market.
