The data center industry is experiencing a temporary “pause” in some projects, but experts say this is likely a strategic realignment rather than a bust. Despite Microsoft pulling the plug on a planned data center in Ohio and Amazon Web Services reconsidering some leases, recent earnings from data center supplier Vertiv and Alphabet suggest strong demand for data center infrastructure.
Commercial real estate executives say the pause in some data center capital expenditures is temporary, with hundreds of billions of dollars still expected to be spent. “We continue to see accelerated scaling of AI deployments across the data center market, with strong demand signals reinforcing both our near- and long-term growth,” said Giordano Albertazzi, CEO of Vertiv.
Amazon and Nvidia have reaffirmed that the data center market remains strong. “There’s been really no significant change,” said Kevin Miller, Amazon’s vice president of global data centers. “We continue to see very strong demand, and we’re looking both in the next couple years as well as long term and seeing the numbers only going up.”
The data center industry is adapting to changing market conditions, including the impact of tariffs and trade wars. “Rather than a bust, this is a reshuffling of the deck in an environment where power, fiber, water, and land are scarce and strategic,” said John Carrafiell, co-CEO of BGO.
Major tech companies are planning to spend over $300 billion in capital expenditures this year, largely tied to AI infrastructure. The long-term adoption of AI is expected to drive demand for data centers over the next decade. “We aren’t even in the first inning yet,” Carrafiell said.
Challenges Facing Data Center Growth
The rapid growth of data centers is creating challenges for utilities, which must ensure they can supply power to all customers, even during peak demand. “New data centers are increasing in size so dramatically that the grid cannot keep up,” said Allan Schurr, chief commercial officer of Enchanted Rock.
Power Availability and Grid Infrastructure
Data centers require massive amounts of electricity for computing power and cooling systems. Three percent of the world’s power is now tied up in data centers. To alleviate strain on the grid during peak hours, companies are exploring innovative solutions.
“If we can alleviate demand on the grid for those 100 to 500 hours, the long interconnection delays can be shortened,” Schurr said.
Future Outlook
Despite potential short-term variations in growth rate, the data center market is expected to grow 20%-25% over the next five to seven years. “It will not be linear,” said Pankaj Sachdeva, senior partner at McKinsey & Company.
The industry is expected to adapt to evolving trade policies and technological advancements. “Longer-term, a push towards geographic diversification, co-manufacturing in tariff-friendly regions, and deeper integration of AI-driven supply chain analytics can be expected,” said John Archer, senior delivery principal at Slalom Consulting.
