AI is fueling a data center building boom to start 2025

We are just a little over a week into the new year, yet we have already seen a flurry of data center announcements. The biggest by far was Microsoft’s plan to invest $80 billion in data centers this year alone. 

Not to be left out, AWS announced plans to spend $11 billion in Georgia on data centers and the incoming administration announced a $20 billion federal effort aimed at building more data centers in the U.S., an investment led by Emirati billionaire Hussain Sajwan.

It should come as no surprise that AI is behind this $111 billion push with much more likely to come. Ray Wang, founder and principal analyst at Constellation Research says companies are fighting hard to own market share by building as much capacity as they can muster.

“Companies must invest heavily or risk falling behind,” Wang told FastForward, adding that government investment is also inevitable. As for Microsoft’s investment, he thinks it’s because the demand has outstripped capacity, a good problem to have, and that their older data centers are not necessarily equipped to handle AI's power and resource requirements.

“Right now, if a customer wants more capacity from Microsoft, they can't get it because they are underinvested in their cloud infrastructure,” he said. “That's why they're spending so much -- because they're playing catch-up [and they need to modernize]."

Yet, regardless who is building them, AI data centers are not like typical data centers running enterprise applications, says Patrick Moorhead, founder and principal analyst at Moor Insights & Strategy.

“AI data centers have unique power and cooling requirements, including water cooling for GPUs. The power draw per mm2 can be 10x higher than a traditional data center serving standard enterprise applications,” Moorhead said.

Those resource requirements are in part leading to a backlash against data center construction in some communities across the U.S., as the Washington Post reported in October. (It’s worth noting that the WaPo is owned by Amazon founder and chairman Jeff Bezos, whose company is trying to build a fair number of them.)

The most recent data from Synergy Research, a firm that tracks data about all things cloud, found that the number of data centers run by the hyperscalers -- the largest companies like Amazon, Google and Microsoft -- surpassed 1000 in early 2024. It surely has grown since that data came out early last year. 

In a separate report in August, the company found that the same hyperscalers accounted for 41% of the worldwide capacity of all data centers, a massive percentage that is only expected to grow in the coming years, as the chart below illustrates:

Hyperscalers are defined as the largest companies able to scale to whatever demand is required (at least in theory). AI is challenging that notion, and that has led to the flurry of announcements we have seen early in the new year.

Photo by NOIRLab/NSF/AURA/T. Slovinský on Wikimedia Commons. Used under the Creative Commons Attribution 4.0 International License.