The AI Factory Illusion

Where politics and power meet AI.

From AI datacenter to AI factory: a political rebrand

In recent months, a subtle but politically astute rebranding has propagated across the AI industry. Leading figures like NVIDIA’s Jensen Huang and OpenAI’s Sam Altman are no longer calling the backbone of AI infrastructure "AI data centers." Instead, they refer to them as "AI factories."

At first glance, this might seem like hype-driven marketing speak. But the intent and implications of this linguistic shift are anything but trivial. The rebranding is deeply political, aligning Silicon Valley’s ambitions with nationalist industrial policy, particularly the Trump-era vision of reshoring American manufacturing.

A new metaphor

Take Jensen Huang’s own words just this week:

“AI is now infrastructure, and this infrastructure, just like the internet, just like electricity, needs factories,” Huang said.

“These factories are essentially what we build today.” “They’re not data centers of the past,” Huang added. “These AI data centers, if you will, are improperly described. They are, in fact, AI factories. You apply energy to it, and it produces something incredibly valuable, and these things are called tokens.”

He paints a picture of AI infrastructure not as ephemeral cloud services, but as physical, job-creating, patriotic assets that produce physical things. At a recent event, Jensen questioned why America would onshore sneaker manufacturing but offshore AI manufacturing, rightly suggesting that outsourcing AI factories would be a strategic blunder. This framing is echoed in Sam Altman’s lobbying campaign to raise trillions for nuclear-powered AI infrastructure and further Stargate’s buildout. These aren’t server farms - they’re the largest industrial project in history.

Global supply, domestic illusion

Talk of AI factories wrap digital infrastructure — still globally sourced, largely automated, and low on direct job creation — in the comforting rhetoric of American industrial revival. And it’s working.

The term "factory" evokes a 20th-century mental model of production: smokestacks, union jobs, and steel. But traditional factories produce physical goods. Most critical infrastructure that doesn't – like power plants, roads, or communication networks – isn't labeled a factory. We don’t call a power plant a "power factory," or fiber optic networks "internet factories." Even a datacenter, arguably closer in function, isn’t called one. This shift in nomenclature stretches the metaphor to serve a political narrative.

The reality is far more global and intangible. The components of an "AI factory" other than the NVIDIA GPU – TSMC fabs, ASML lithography tools, SK Hynix and Samsung memory modules, Foxconn server assembly, and even rack and power systems – are designed and manufactured overseas. The CUDA and PyTorch software that runs them is built by researchers and engineers scattered across the globe. Yet the new language gives cover for governments to subsidize these facilities as if they were a domestic industrial renaissance.

AI factories as the new geopolitical lever

The strategic logic is obvious. Politically, an “AI factory” sounds like a jobs program. It plays to voters in swing states who want to believe that manufacturing is returning. It gives policymakers on both sides of the aisle, whether it was Biden with the CHIPS Act or now Trump with America First manufacturing, cover to write massive checks and ink trade deals. And it lends moral weight to Silicon Valley’s demands for subsidies, energy permits, and export control exemptions.

You can see this narrative being embraced abroad too. Just last week, Gulf states like the UAE and Saudi Arabia signed enormous AI infrastructure deals with the U.S. with the same gravity as oil, gas, and defense agreements. The analogy is clear: AI is the new petroleum, and owning the means of its production – its factories – is a source of sovereign power.

Under the new 'AI Acceleration Partnership' signed during President Trump's visit to Abu Dhabi, the U.S. secured a framework where Gulf partners will build large AI campuses powered by American chips and infrastructure, while also committing to invest billions into U.S.-based data centers. Saudi Arabia received similar terms. In return, American hyperscalers retain ownership of the compute clusters, and all advanced semiconductors remain under tight U.S. security controls—positioning the U.S. tech stack as the de facto standard for the region.

But how durable is this alignment? Unlike physical factories – like power plants that ship electrons – AI factories transmit packets over a global communications grid that’s already in place. Software models and AI services can be rerouted far more easily than oil or electricity. What’s to stop these same facilities from running Chinese foundation models or serving Chinese tech companies? The political allegiance of AI infrastructure may be more fragile than the industrial metaphor implies.

Factories for AGI

Jensen often draws an analogy to car companies to explain what an AI factory is. A car company doesn’t just make cars – it also builds and automates the systems that make cars. Now, AI is becoming the intelligence layer within both the product and the production process. The AI that powers vehicle autonomy, logistics, or manufacturing robots must be trained somewhere. That somewhere is the car company’s own AI factory. This narrative makes it easier to justify in-house GPU clusters, massive CapEx, and a closer alignment between physical manufacturing and digital intelligence.

This rhetorical pivot carries real influence. By recasting a globally dependent, capital-intensive, low-employment infrastructure as a patriotic asset, it encourages a narrative that aligns with strategic policy goals. It helps direct subsidies and public investment toward critical AI infrastructure – even if the on-the-ground economic impact differs from traditional manufacturing. While this language can be constructive in shaping national AI capacity, it also obscures the underlying reality: most of the economic value is captured by software platforms and global chipmakers, not American factory workers.

Narratives move markets

If the 20th century was defined by steel and oil, the 21st will be defined by semiconductors and AI models. The industrialization of AI infrastructure is accelerating – and nations are treating it as a matter of strategic importance.

OpenAI’s new 'OpenAI for Countries' initiative is just one recent example of how AI capabilities are being politicized as national assets and geopolitical levers. In that context, calling data centers “factories” isn’t just branding – it’s a deliberate rhetorical move that aligns the AI sector with the language of industrial policy.

There are two takeaways. First, we shouldn’t let this metaphor obscure the mismatch: these “factories” don’t produce physical goods, and the value they generate is neither local nor easily contained. Second, for companies building this infrastructure, aligning with the political narrative is now a strategic imperative. Jensen’s AI factories may win hearts in Washington – but we’d do well to remember where the real value accrues.