AI demand boosts big private equity profits from chip and data deals

In short: Demand linked to AI is helping a small number of private equity firms make very large profits, even as many other deals struggle.

What's going on

Private equity firms, which buy companies and try to sell them later for more, have had a tough time recently. The Financial Times says many firms are sitting on older deals they cannot easily sell, and some software companies they bought now face new competition from AI tools.

At the same time, a few firms are seeing outsized gains from businesses that benefit from AI growth. One example is Bain Capital’s investment in Kioxia, a Japanese chipmaker that makes NAND flash memory (a type of storage used in phones, laptops, and data centers, like a warehouse for digital information). Bain bought Kioxia out of Toshiba in 2018, but the deal had early setbacks, including a delayed attempt to list the company on the stock market and a period when memory chips were oversupplied.

Now, the FT reports AI-related demand has lifted Kioxia’s value, and Bain could make a gain of more than $15 billion. The return could be close to 20 times what Bain invested.

The FT also points to other big winners tied to AI spending. Silver Lake’s long-running Dell investment has grown sharply as Dell sells more equipment linked to AI use. KKR also made about 15 times its money by selling CoolIT Systems, which supplies equipment used in data centers (large buildings filled with computers, like a factory for processing and storing online services).

What to watch

If AI demand keeps rising, more private equity firms may focus on chips, data centers, and the power and cooling systems that keep them running. If demand cools or chip prices fall, some of these gains could shrink quickly.

Source: Financial Times