Data Center Demand Could Signal New Investment Opportunities
Two recent announcements underscore the growth opportunities in U.S. data center development. First came the news from the White House that it plans to support the development of new data centers by fast-tracking the permitting process and incentivizing data center owners and operators with loans, grants, tax credits, and technical assistance.
Days later, BlackRock announced joining forces with Microsoft, Global Infrastructure Partners, and MGX to invest in “new and expanded data centers to meet growing demand for computing power.” The driving force behind both announcements is to address a seemingly unquenchable need for new data centers to support the exponential popularity of artificial intelligence (AI).
In the case of the first announcement, the White House says it plans to “work with AI infrastructure leaders to identify opportunities and work with agencies to ensure adequate resourcing, designate … single points of contact, and properly prioritize AI data center development.” The rationale behind the BlockRock announcement is far less bureaucratic. BlackRock, Microsoft, and others intend to “mobilize up to $100 billion” to “enhance American competitiveness in AI.”
“Mobilizing private capital to build AI infrastructure like data centers and power will unlock a multi-trillion-dollar long-term investment opportunity,” Larry Fink, Chairman and CEO of BlackRock, said in a press release. “Data centers are the bedrock of the digital economy, and these investments will help power economic growth, create jobs, and drive AI technology innovation.”
The need for more U.S.-based AI-focused data centers
Domestic data centers — large and small — are already overburdened, and going forward, power demands will continue to skyrocket as AI gains traction in nearly every industry. According to Goldman Sachs, by 2030, the demand for AI-powered resources will increase so much that the need for additional data centers will grow by 160 percent.
“At present, data centers worldwide consume 1- 2 percent of overall power, but this percentage will likely rise to 3 - 4 percent by the end of the decade,” Goldman Sachs research shows. “In the U.S. and Europe, this increased demand will help drive the kind of electricity growth that hasn’t been seen in a generation.” Recent findings from McKinsey & Company echo these projections.
“To keep pace with the current rate of adoption, the power needs of data centers are expected to grow to about 2.5 times higher than current capacity by the end of the decade, going from between 3 and 4 percent of total U.S. power demand today to between 11 and 12 percent in 2030,” according to the McKinsey report.
As a result, the U.S. will soon be the “fastest-growing market for data centers, growing from 2024 demands of 25 gigawatts (GW) to more than 80 GW of demand in 2030.” And while McKinsey predicts generative AI will eventually “help create between $2.6 trillion and $4.4 trillion in economic value throughout the global economy,” delivering on that value will “require between 50 and 60 GW of additional data center infrastructure in the United States alone.”
How Smaller, “Micro” Data Centers Could Help
Despite its projections, McKinsey identifies several constraints that could hinder the projected growth of domestic data centers, including:
The industry is now nearing its physical limitations on node sizes and transistor densities
The time required to get new power connections for data center sites in major data center hubs has been increasing
Locations outside the U.S. have put moratoriums in place preventing new data center construction
Vacancy rates in tier-one data center markets are now at historic lows, hampering interconnection and grid access
Interconnection limitations are resulting in a lack of power in many markets
However, McKinsey suggests that building smaller, micro data centers could be a workaround for this myriad of constraints. “Shortages of critical equipment have allowed for growth among smaller companies focused on creating generators and among hyperscale-focused providers creating [power distribution units], according to their report. “Investors can seek out the smaller companies creating this critical equipment to help them scale.”
The bottom line, according to McKinsey: data centers, large and small, represent a “significant opportunity” across the power value chain for “investors [to] participate in and enable solutions to meet the demand for data centers and accelerate growth.”
Are you an accredited investor interested in supporting the growth of new data centers? If so, contact Avestix to find out how we are currently leveraging data center growth in our investing strategy.
