Investors are closely watching data center demand growth and how power providers are rising to meet it, though hyperscalers' need for speed may outstrip many options, panelists at the S&P Global Data Center and Energy Innovation Summit in Washington, DC, said Sept. 18.
Although data center projects in Wisconsin, Ohio, North Carolina and elsewhere have been canceled or paused this year — suggesting the possibility of a slowdown or bubble waiting to burst — the demand for digital infrastructure remains strong, panelists said.
"There's no slowdown," said Buddy Rizer, executive director of the Department of Economic Development in Loudoun County, Virginia. The number of data centers in the area has grown to more than 200, with about 3.5 GW built so far and a goal for 11 GW. "There's a retrenching, there's a rethinking and significant headwinds, but the demand for digital infrastructure has never been more significant than it is today."
Market uncertainties such as tariffs could drag the industry, but "there is no question that data is growing, so the opportunity for us continues," said Simon Ninan, chief strategy officer for Hitachi Vantara Corp.
Corey Sanders, senior vice president of strategy at CoreWeave Inc., said his company doesn't "really know what a slowdown looks like, because we haven't seen one yet ... the growth is staggering. The demand still outstrips the supply" of power.
If there were to be a slowdown, Sanders suggested it would likely first come from customer demand for AI capacity, which he characterized as "insatiable."
"When your product is built on, well, 'Let's see what other problems I can go solve,' that doesn't seem to have one of those limitations that we've traditionally had in that boom-bust-build cycle associated with power infrastructure," said Raiford Smith, global head of energy and utilities for cloud at Google LLC.
But panelists recognized elements that could contribute to slowdowns or stifle growth, including supply chain constraints, stress to electric grids, unpredictable policy and community pushback.
Power needs
Speed has been the deciding factor for data center developers as they look to determine how to power their facilities. Many are looking to behind-the-meter solutions, such as onsite gas-fired turbines.
"Speed is pretty much everything that's driving where we're going when we build a new data center," said John Adams, senior vice president of power infrastructure for Crusoe Energy Systems LLC. "We'd love to be able to go behind the grid, or get grid power ... however, to get an interconnection ... takes much longer than what a lot of our hyperscalers are allowing us to do right now."
That speed is necessary, Adams said, since these companies are waging what panelists characterized as an "AI war" or an "AI arms race" with other nations and domestic competitors.
"The first ones that get to get the AI up and running are the winners, and you can't do it if it takes too long," Adams said.
While speed has driven Amazon Web Services Inc., "we continue to see the most cost-effective solution for long-term growth being connected to the utility grid," said Brandon Oyer, head of Americas power and water for the company.
Hyperscalers are taking an "all-of-the-above" approach to generation, and some stand by commitments to decarbonize, but grid connection queues are too long.
"The grid has limits," said Andrew Levitt, senior consultant for the Brattle Group, adding that transmission constraints are a key challenge to connecting power-hungry datacenters to the grid. Panelists agreed that aligning local, state and federal policy could help.
Small modular nuclear reactors (SMRs) have emerged as a potential option to power these facilities. Several tech companies have announced partnerships with SMR developers even though no reactors are commercially available yet in the US, and most are not expected to be available until the mid-2030s at the earliest.
CJ Fong, of SMR developer Blue Energy Co., said the goal is to be able to construct reactors more quickly, but the industry is still grappling with regulatory hurdles and other challenges.
And questions persist about whether banks will be comfortable financing SMR projects, said Michael Mudd, director of the global sustainable finance group at Bank of America.
"You're going to have to rely on some sort of equity financing in the beginning so there's operating history," Mudd said.
If the project is undertaken by an independent power producer or a well-known utility, though, "you might get financing in that space," Mudd added. "There hasn't really been project financing in nuclear in the US."
Finance
S&P Global Market Intelligence data shows more than $60 billion could be required per year beginning in 2026–2027 for data center construction. Finance panelists projected a 25% annual growth rate in data center capacity, potentially flattening by 2030–2031.
The success of tech giants including Alphabet Inc., Microsoft Corp., Meta Platforms Inc. and NVIDIA Corp. has been driving the market, said Melissa Otto, head of research for Visible Alpha, part of S&P Global.
Much of the funding for data center construction — about 80% — has come from lending, Mudd said.
While green bonds have fallen off 30% globally and 43% in the US compared to the previous year, largely because of policy uncertainty, they remain a strong option for data centers with renewable power sources, said Jesús Palacios, director of sustainable finance market analytics at S&P Global Ratings.
"There's an issue about matching supply and demand here, where there is a very strong demand for capital to build up the infrastructure ... while at the same time there's the need to diversify the sources of funding. There's a need to broaden the investor base, and this is where green bonds could play a role," Palacios said.
The data center market remains somewhat uncertain, however, panelists said.
"Whether there's a bubble or not, there's a segment of the market that is over their skis," said Frederic Rosenberg, managing director and head of US private credit and infrastructure at Deutsche Bank. "Whether this is a bubble or not, we won't know for a long time."
There will be winners and losers in the space, Mudd said, but the leading hyperscalers are "starting from very steady footing."
One of the questions the investment community is grappling with when it comes to data centers is, "Do we have enough energy?" Otto said. But that has not necessarily discouraged investors.
"We haven't really seen anything of this magnitude since the internet, and wanting to participate in that rising tide has, I think, put the capex and the investment lens on that squarely on prioritizing AI investments," Otto added.
