The Growing Demand for Data Centers Driven by Artificial Intelligence

The insatiable demand for computation power driven by artificial intelligence (AI) is fueling a global expansion of data centers. Investors and manufacturers are optimistic that this trend will continue, reflecting a surge analogous to that seen during the industrial revolution.

Research indicates that the computational power required for an AI search, such as ChatGPT, is approximately ten times that of a standard Google search. Goldman Sachs predicts that AI-related energy demands will soar by 165% by 2030, while McKinsey estimates that Europe alone will require investments between $250 to $300 billion just to meet the new computational load, not including energy production capabilities.

The Role of Data Centers in AI Development

The increasing demand for compute capacity, particularly for cloud-based workflows, is accelerating investment in data centers. These facilities house the cloud computing and storage resources necessary for delivering software applications, training AI models, and performing various additional processing tasks.

As of March, the United States leads the world in the number of data centers, boasting 5,426 facilities, followed by Germany (529), the United Kingdom (523), and China (449). By 2030, these figures are expected to increase by 30% to 40%. Global investments in data centers are projected to reach $7 billion.

Land and Energy Considerations

The availability of suitable land and energy is vital for building data centers. Tim McGuire, the Main Director of Project Finance at Rowan Digital Infrastructure, explains that having land suitable for data center development significantly enhances its value. In regions like Northern Virginia, land prices have soared to over $2.5 million per acre, especially when accommodating hyperscalers like Amazon Web Services, Google, and Microsoft.

Energy and water are crucial components of operational costs, with energy often posing challenges in various regions. McGuire notes that while the energy infrastructure may be present, establishing interconnections can take months or even years and can be costly. Public utilities are increasingly taking on these interconnection projects, a trend that supports well-capitalized developers who can navigate these requirements effectively.

Financing Data Center Projects

Building a data center requires substantial capital, leading many investors to partner with global firms like Blackstone. Claus Hertel, General Manager of Rabobank, highlights that significant project financing teams specializing in renewable energy and digital infrastructure are integral to funding these ventures. A typical financing structure includes provisions for construction, term financing, and transitioning to permanent funding once the data center is operational.

The Future Landscape of Data Center Investment

The data center industry has evolved rapidly, and projections indicate an acceleration in future growth. Gordon Bell of EY-Parthenon notes that more capital will be necessary than ever before, presenting existing owners of data centers with new challenges in raising and recycling funds. One emerging solution is the creation of dedicated funds to hold a portfolio of stabilized assets, providing diversification for investors interested in the sector.

Despite the challenges, the future appears bright for data centers, driven by ongoing investments from hyperscalers and increasing demand for AI and cloud services. McGuire is optimistic about the sustained growth in this sector, foreseeing robust support for data center activity in the coming years.