AI Growth Makes Data Centers the New Industrial Powerhouses

02/11/2025

Industry Insights Tech Cre

In the digital economy, data centers have evolved from obscure “server closets” into critical infrastructure on par with factories of the past. The recent explosion of AI applications – from advanced cloud AI services to ubiquitous generative AI tools – is reshaping the real estate landscape. Investors and developers are witnessing an unprecedented surge in demand for the physical facilities that power AI. In effect, AI workloads are driving a transformation of real estate, turning massive data center campuses into today’s industrial powerhouses. These facilities, often resembling warehouses or industrial parks, now command the attention of institutional investors and high-net-worth individuals as a burgeoning asset class.

AI Workloads Skyrocket, Driving Unprecedented Power Demand

The rise of artificial intelligence is pushing data center requirements to new heights. Training and running AI models (such as large language models behind chatbots and image generators) require tremendous computing power, which in turn demands enormous electrical capacity. A single AI model training run can consume megawatt-hours of energy – one reason why industry projections show data center power use more than doubling by 2030 CBRE Research – Global Data Center Trends 2024. In fact, research suggests global data center capacity might nearly triple by 2030, with roughly 70% of new demand coming from AI-driven workloads CBRE Research – Global Data Center Trends 2024. This “AI gold rush” is evident in the surging orders for high-end chips like NVIDIA’s AI GPUs and the rapid build-out of specialized AI computing clusters by cloud giants and startups alike. Each new AI-powered service (from self-driving car algorithms to real-time financial analytics) ultimately runs in a data center – and often at power densities far beyond traditional IT. Hyperscale operators are reportedly commissioning data halls that can support 30–50 kW per rack (several times the power of a typical rack a few years ago) to accommodate rows of AI accelerator servers. All of this translates to robust demand for space, electricity, and cooling on a scale never seen before. It’s telling that in major U.S. hubs like Northern Virginia, new data center projects are being fast-tracked to deliver hundreds of megawatts of capacity to hungry AI tenants CBRE Research – Global Data Center Trends 2024. Quite literally, megawatts are the new currency of growth in the AI era.

Key Criteria for Data Center Site Selection

Choosing the right location for a data center has always been a nuanced decision, but the high-stakes needs of AI and cloud providers have made site selection even more critical. Developers now evaluate potential sites much like manufacturers once scouted factory locations – but instead of coal and steel, the inputs are electrons and fiber optic signals. Important criteria include:

Power availability & cost: Reliable, abundant electricity is the lifeblood of any data center. Locations with access to high-capacity power grids (or on-site generation) at competitive rates have a clear edge. AI mega-clusters might require 50+ MW each, so proximity to substations and utility willingness to expand infrastructure are key. Many projects also seek renewable energy sources or long-term power purchase agreements to lock in costs and meet sustainability goals.
Climate and cooling: Cooler climates and low ambient humidity can reduce cooling costs significantly. Regions like the Pacific Northwest or Nordic countries provide free cooling much of the year, improving efficiency. Conversely, hotter climates (e.g. Phoenix) must invest in robust HVAC or water-chilled cooling systems. Water availability is a factor too – facilities using evaporative cooling or direct water cooling need stable water sources, which can be a challenge in arid areas.
Fiber connectivity: Data centers thrive on connectivity. Ideal sites sit near major fiber routes or Internet exchange points, offering low-latency links to carriers and cloud backbones. Proximity to network hubs (such as downtown core fiber networks or undersea cable landings) can make a site highly desirable, especially for latency-sensitive AI applications. Many top markets grew around network density – for example, Northern Virginia’s Ashburn area became “Data Center Alley” in part due to the MAE-East Internet Exchange and dense fiber.
Tax incentives & economics: States and municipalities often woo data center projects with tax breaks, such as sales tax exemptions on IT equipment, property tax abatements, or infrastructure grants. Areas like Arizona, Virginia, and Utah have offered aggressive incentive packages to attract data center investment. Developers will weigh these benefits alongside land costs, construction costs, and permitting speed. A friendly regulatory environment can tip the scales when deciding between two viable sites.
Risk and resiliency: Minimizing risk factors is essential. Sites are evaluated for natural disaster risk (avoiding floodplains, seismic fault lines, hurricane zones), stable geopolitics, and even potential NIMBY opposition. Physical security considerations also play in – a buffer from neighboring development and easy access for security personnel. In the age of AI and cloud, data centers are considered critical infrastructure, so locations that offer both low environmental risk and strong infrastructure resilience (multiple power feeds, diverse fiber paths) are preferred.

It’s worth noting that outside the U.S., similar criteria apply. For instance, the Nordic countries have become Europe’s “silent data center powerhouse” by offering abundant renewable power (hydroelectric and wind), a naturally cold climate for efficient cooling, and political stability Reuters – CoreWeave inks $11.9B OpenAI contract, eyes IPO. Meanwhile, in the Middle East, countries like the UAE and Saudi Arabia are investing heavily in mega-scale data centers as part of digital transformation agendas, leveraging affordable energy and strategic location at the crossroads of global internet routes Core Scientific Investor Release – June 2024 Update. In all cases, the fundamentals of power, connectivity, and risk management drive where new data center capacity is being deployed.

Top U.S. Data Center Markets (and Why They Matter)

The United States remains the world’s largest data center market, and a handful of key metros lead the pack in hosting digital infrastructure. While demand is widespread, the following markets illustrate where AI and cloud growth are clustering:

Northern Virginia (Ashburn/”Data Center Alley”)

Northern Virginia is by far the globe’s most concentrated data center hub, with estimates of over 3 gigawatts of commissioned capacity and more on the way. Centered in Loudoun County’s Ashburn area, this market took off thanks to early fiber optic intersections and favorable tax policies. Today, it’s the de facto home of the cloud: major operators like Amazon Web Services, Google, and Microsoft (along with dozens of colocation providers) maintain massive campuses here. The region’s importance is self-reinforcing – networks converge in Ashburn, so every new facility can plug into a rich connectivity ecosystem. Local authorities have benefited too; Data Center Alley now provides a substantial chunk of the county’s tax revenue. The AI boom is pushing Northern Virginia even further: in 2024, the area saw record new construction (nearly 400 MW added in one quarter) to keep up with hyperscaler demand CBRE Research – Global Data Center Trends 2024. One challenge, however, is emerging: the electrical grid in some parts of Northern Virginia is straining under the load, prompting utilities and regulators to accelerate upgrades. Still, with its unmatched fiber density and entrenched industry presence, Northern Virginia remains the crown jewel of data center real estate.

Dallas–Fort Worth (North Texas)

The Dallas–Fort Worth (DFW) metroplex is another key data center market, often ranking just behind Northern Virginia in total capacity. North Texas appeals to operators for its central location (low latency to both coasts), robust power infrastructure, and business-friendly climate. Large tracts of land are available around Dallas, and the area’s electricity rates have historically been affordable – a legacy of Texas’s energy production. DFW has major carrier hotels and internet exchanges, making it a connectivity-rich environment for deployments. In recent years, cloud giants and colocation firms alike have been building out big campuses in suburbs like Plano, Garland, and Fort Worth. For example, Facebook (Meta) chose Fort Worth for a multi-million-square-foot data center, and Google and Microsoft have also secured sites in the region. The DFW market’s growth continues as AI and cloud services expand: its combination of central US coverage and capacity to scale makes it a strategic hub for serving North America. Investors see Dallas as a stable, long-term play – it’s a diversified economy with continued population and business growth, which indirectly drives even more demand for digital services (and hence data centers).

Salt Lake City, Utah

Salt Lake City might not have the sheer volume of Northern Virginia or Dallas, but it has quickly emerged as an important secondary data center market in the Mountain West. What draws operators to Utah? For starters, power availability and cost: Utah offers relatively inexpensive electricity, including significant renewable energy (solar and wind) that appeals to sustainability targets. The climate is another advantage – the region’s cold, dry air is ideal for free cooling much of the year. Salt Lake City’s geographic location (away from coastal natural disasters yet still well-connected via fiber routes) makes it a safe and strategic choice for disaster recovery sites and Western US coverage. The area has seen large-scale projects from the likes of Meta (which built a sprawling new data center campus in Eagle Mountain, UT) and others leveraging local incentives. As the tech sector quietly flourishes in Utah (“Silicon Slopes”), the digital infrastructure is rising with it. For investors and developers, Salt Lake City represents an opportunity to get in on a high-growth market with plenty of expansion room and a supportive business environment.

Atlanta, Georgia

The Atlanta metro has long been the connectivity hub of the U.S. Southeast, and its data center market is ascending rapidly. Several factors make Atlanta attractive: it sits at a crossroads of long-haul fiber networks (many cables running up the East Coast or west toward Texas pass through), it enjoys reasonably affordable power, and it has a large and growing metro customer base driving demand for cloud services. Atlanta’s climate is temperate (though humid in summers), and land is available in suburbs for large campuses. We are seeing big developments in areas like Douglas County and Lithia Springs on the periphery of Atlanta. The State of Georgia has also provided sales tax exemptions on data center equipment for qualified investments, which has lured more operators. Notably, Google has a significant presence in the region (with a campus in Douglas County), and a variety of colocation providers have expanded in and around Atlanta to serve both local enterprises and as a regional hub. As more AI and digital media companies establish operations in the Southeast, Atlanta stands to gain further. It offers a balance of strong infrastructure and lower costs than the Northeast hubs, making it a key growth market to watch.

Phoenix, Arizona

Phoenix has become a hotbed (literally and figuratively) for data center development in the Southwest. Despite the desert heat, Phoenix offers compelling benefits: relatively low-cost land, a pro-development regulatory environment, and a location that can serve West Coast demand with less earthquake risk than California. Major providers have built sprawling data center parks in Phoenix suburbs like Mesa and Goodyear, often targeting hyperscale cloud deployments. The region’s power grid has been able to support large projects (including sourcing renewable energy from solar farms in Arizona’s sunny climate), although water usage for cooling is a growing concern. To mitigate that, many Phoenix facilities use innovative cooling techniques like airside economization at night or minimal-water cooling systems. Phoenix’s rise also owes to connectivity improvements – new fiber routes now better link Arizona to Los Angeles, Silicon Valley, and Dallas, reducing latency. The result is that Phoenix is no longer just a disaster recovery locale for California companies; it’s a primary location for many new west-coast-serving data centers. Investors are attracted to Phoenix for its growth trajectory and comparatively lower entry costs. The market has seen some of the nation’s highest absorption rates in recent years, signaling strong demand.

Modern Data Center Infrastructure: Cooling, Power and Security

Building an AI-ready data center isn’t just about where to locate – it’s about how to equip the facility to handle extreme technical demands. Today’s data centers are engineering marvels, designed to maintain uptime for thousands of high-density servers 24/7. Key infrastructure considerations include:

Advanced cooling systems: With racks now pulling 30kW, 40kW or more due to GPU servers, traditional air cooling must be augmented. Many operators are deploying liquid cooling solutions – from direct-to-chip cold plates to full immersion tanks where servers are bathed in coolant. Others are using hot/cold aisle containment and evaporative cooling to maximize efficiency. The goal is a low PUE (Power Usage Effectiveness) despite the intense heat output of AI hardware. In cooler climates, ambient air can be used for “free cooling” much of the year, whereas in warmer locales, mechanical chilling plants and even refrigerant-based CRAC units remain necessary. Cutting-edge designs by leading firms include on-site water treatment for cooling reuse and heat recycling systems that repurpose waste heat for local heating needs.
High-density power & redundancy: AI-centric data centers must deliver enormous power to the IT racks – and do so reliably. Electrical infrastructure is typically built with significant redundancy (Tier III or IV equivalent), meaning multiple independent power paths, backup generators, and large-scale UPS battery systems. It’s common to see dual utility feeds and banks of diesel generators that can each supply tens of megawatts in an outage. As power densities climb, data center designers are shifting to higher-voltage power distribution inside facilities to reduce losses (for example, using 415V AC or even direct DC busways to servers). Battery technologies are also evolving, with some modern data centers using lithium-ion or even considering flow batteries for more sustainable backup. The end result is an environment where even if one component fails, another instantly takes over – critical for AI applications that may be running mission-critical or time-sensitive computations. Downtime is not an option when, say, an AI model is serving millions of users or an algorithm is managing real-time trading.
Security and physical hardening: Given that data centers now effectively house “digital gold,” operators go to great lengths to secure their facilities. This starts with site selection (as noted, avoiding high-risk zones) and continues with on-site measures. Most large data centers are fenced and gated, with 24x7 security personnel. Biometric access controls (fingerprint, iris scan) and multi-factor authentication are standard for entry into server rooms. Interior zones are divided so even an insider can’t freely wander – you need credentials for each sector. Surveillance cameras, motion sensors, and even drone monitoring help cover the perimeter and interior. Beyond human threats, the facilities are hardened against environmental factors – for instance, thick-walled construction and seismic bracing to protect against earthquakes, and advanced fire suppression systems (often gas-based like FM200 or NOVEC) to quickly extinguish electrical fires without water damage. In essence, these buildings are fortress-like in design, reflecting their role as the backbone of the information age. For institutional investors, the resilience and security of a data center property are as important as the location and tenant – a well-built facility safeguards the investment by mitigating risks ranging from power outages to cyber-intrusions.

Investment Outlook: From REITs to Private Equity, Capital Pours In

The confluence of rocketing demand and stable, long-term cash flows makes data centers a highly attractive asset class. In the U.S., data centers are now seen as core infrastructure investments, blending real estate’s tangibility with tech’s growth potential. As a result, capital from various avenues is pouring into the sector:
- Data center REITs and public markets: Several specialized real estate investment trusts (REITs) focus on data centers, allowing investors to buy into the trend via public markets. Industry leaders like Equinix and Digital Realty Trust have delivered steady growth and are aggressively expanding to keep up with tenant needs. In recent years, M&A activity has surged – for instance, CoreSite and QTS Realty (two major U.S. data center operators) were each acquired by large-cap investors in multi-billion-dollar deals, underscoring the value of these platforms. REITs typically lease space to cloud giants and enterprises on long-term contracts, providing reliable income streams. As AI pushes demand higher, these companies are increasing capital expenditures: new development pipelines for big REITs measure in the billions of dollars, reflecting confidence in future leasing. One notable trend is the globalization of portfolios – U.S. REITs have acquired assets in Europe, Asia, and Latin America to support clients wherever they grow.
- Private equity and infrastructure funds: Institutional investors – from private equity firms to sovereign wealth funds – have been extremely active in data center investing. They’ve taken public companies private (for example, KKR & Global Infrastructure Partners bought out CyrusOne, and Blackstone’s funds acquired QTS) and are funding new ventures. The appeal is clear: data centers offer a combination of yield (through rent or service revenue) and growth (through appreciation and expansion) that is hard to find elsewhere. We’re seeing infrastructure funds treat data centers akin to utilities or transportation assets, recognizing digital infrastructure as essential 21st-century plumbing. Massive capital commitments are becoming common: just in 2023, one AI-focused data center startup raised over $2.3B in debt financing for expansion, and by 2024 a consortium led by Blackstone provided a further $7.5B debt facility to fuel growth World Economic Forum – The global data centre gold rush. These are staggering numbers, indicative of the scale of investment required (and the level of conviction in future demand). For high-net-worth and institutional investors, partnering with or co-investing in such ventures can offer exposure to the upside of the AI infrastructure boom.
- Rising development costs (and opportunities): It’s important to note that building and operating data centers is capital-intensive. Construction costs have been climbing due to inflation in materials and the added complexity of high-density builds. Power and cooling equipment, generators, specialized security – all contribute to upfront costs that can exceed $8–10 million per megawatt for a state-of-the-art facility. Despite these costs, the strong demand and scarce supply in top markets mean new facilities often secure tenants before they even open (through pre-leases or cloud provider commitments). This dynamic has kept yields attractive. Furthermore, some operators employ sale-leaseback strategies (selling the real estate to investors while retaining operational control) to recycle capital. The high capex also acts as a barrier to entry, which benefits established players. From an investment standpoint, while interest rates and financing costs are factors to watch (higher rates can slightly compress margins or valuations), the secular growth story of AI and cloud seems to outweigh short-term cyclical concerns. Data center valuations have remained robust, and in many cases, investment demand outstrips available supply of properties for sale. We expect to see continued creativity in financing – including green bonds tied to sustainable data center projects, joint ventures between tech firms and real estate investors, and possibly more IPOs of pure-play digital infrastructure companies – all aiming to capitalize on this unprecedented growth phase.
Challenges on the Horizon: Sustainability, Regulation, and Supply Chain

No boom comes without hurdles. Even as data centers solidify their status as the new industrial behemoths, the industry faces several challenges that stakeholders must navigate:
- Environmental sustainability pressures: The sheer scale of power consumption by large data centers has drawn increasing scrutiny from governments and the public. In an era of climate change awareness, there’s pressure on operators to use cleaner energy and improve efficiency. Many big tech companies have pledged carbon neutrality (or even carbon negativity) for their data center operations, driving investments in renewable power and innovations like advanced heat recycling. Water usage is another concern – data centers using millions of gallons for cooling in water-stressed regions can face community pushback. The challenge for the industry is to keep pace with AI-driven growth while also shrinking its environmental footprint. This has spurred a wave of R&D: from Microsoft experimenting with small nuclear reactors for power CoinDesk – Hive Blockchain pivots to AI/HPC, to startups working on liquid cooling that cuts energy use, to hyperscalers siting facilities in climates (or even underwater) to naturally dissipate heat. For investors, the takeaway is that sustainability is now a core part of data center due diligence: future winners will likely be those best able to grow responsibly and avoid the costs of environmental externalities.
- Regulatory and community hurdles: The rapid expansion of data centers has in some cases outpaced local planning norms. Communities have raised concerns over noise (from cooling fans and backup generators), heavy power grid usage, and land use. In parts of Northern Virginia, for example, officials have debated limits on new data center construction near residential areas due to noise and visual impact. Elsewhere, cities like Amsterdam and Dublin temporarily paused new data center permits in recent years to assess environmental impact and grid capacity. Data sovereignty laws also affect where companies build – regulations may require certain data to stay within national borders, necessitating local facilities. On the flip side, many regions continue to court data centers aggressively. Navigating this patchwork of local zoning, national policy, and international regulations is a challenge that requires savvy planning and often community engagement programs. An established operator might have to work closely with utility providers and governments to ensure that expansions align with infrastructure upgrades. Investors should be aware that regulatory changes (such as new energy efficiency standards or zoning rules) can impact project timelines and operating costs.
- Supply chain and talent constraints: The data center industry’s growth is so rapid that supply chains sometimes struggle to keep up. Critical components like large-scale transformers, switchgear, and backup generators have seen long lead times. Similarly, the semiconductor shortages of 2021–2022 highlighted the vulnerability in obtaining servers and networking gear – something as simple as a delayed shipment of chips can set back a data hall launch. For AI specifically, the scarcity of top-tier GPUs (think NVIDIA’s latest AI chips, which are in such high demand that some cloud providers face months-long waits) can bottleneck the ability to deploy new capacity. Construction itself requires specialized contractors and engineering talent; there is competition for skilled electrical and mechanical trades to build these facilities, not to mention the need for experienced personnel to operate them. Some data center firms are investing in workforce development and training to ensure they have the human capital to match their physical capital. On the technology front, rapid innovation means that today’s cutting-edge can become tomorrow’s legacy. Both operators and investors must keep an eye on emerging technologies (like quantum computing or new cooling methods) that could shift paradigms and potentially require retrofits or new designs. In summary, while demand is not an issue, executing on that demand in a timely and cost-effective manner is a real challenge – one that separates the leaders from the rest.
Notable Data Center Players Riding the AI Wave

Amid this boom, several companies illustrate the new breed of data center operators and users emerging in the AI era. These include firms bridging the worlds of cryptocurrency mining and AI, as well as pure-play AI infrastructure startups:
- Iris Energy ( NASDAQ: IREN ): An operator of next-generation data centers powered 100% by renewable energy, Iris Energy has made a name in Bitcoin mining and is now expanding into AI processing. As of early 2025, the company has scaled to over 600 MW of data center capacity across sites in British Columbia (Canada) and Texas, supporting around 37 EH/s (exahashes per second) of Bitcoin mining capacity. Importantly, IREN is leveraging its infrastructure for cloud and GPU-driven AI services – it recently deployed hundreds of NVIDIA H100 GPUs to launch an AI cloud division. This diversification means Iris Energy can monetize its facilities for both blockchain and high-performance computing. The firm’s focus on renewables and efficient design appeals to ESG-conscious investors, and its latest reports show double-digit revenue growth as it balances crypto mining margins with new AI service contracts.
- Core Scientific, Inc. (OTC: CORZ): Once the largest publicly traded Bitcoin miner in North America, Core Scientific operates a vast footprint of data centers geared for high-density compute. The company manages over 800 MW of infrastructure across multiple states (including Texas, Georgia, and North Dakota), hosting approximately 19 EH/s of self-mining Bitcoin capacity as of 2025. After navigating a restructuring in late 2022, Core Scientific has continued to expand its operations and even pivot toward AI opportunities. Notably, in mid-2024 it inked major contracts with AI cloud provider CoreWeave to repurpose and host 270 MW worth of GPU-driven workloads in its facilities World Economic Forum – The global data centre gold rush. This hybrid model – supporting both blockchain and AI clients – underscores Core Scientific’s evolution into a broader high-performance computing host. Investors are watching how the company balances the volatility of crypto markets with the more stable, albeit hardware-intensive, demand from AI companies.
- CoreWeave (private): A rising star in the AI infrastructure space, CoreWeave has quickly scaled into one of the largest dedicated AI cloud providers in the U.S. The company, founded just a few years ago, started by repurposing GPU rigs (originally used for Ethereum mining) to offer cloud GPU rentals, and has since exploded in growth. Backed by major investors (including NVIDIA itself), CoreWeave expanded from 3 data centers in 2022 to 14 by late 2023, with plans to double to 28 sites globally by the end of 2024 World Economic Forum – The global data centre gold rush. It reportedly oversees a fleet of more than 250,000 GPUs across its network International Energy Agency – Data Center Energy Outlook 2030, providing on-demand computing power for AI model training, graphics rendering, and other intensive tasks. In a headline-grabbing deal, CoreWeave signed a 5-year contract worth $11.9 billion to supply OpenAI with cloud infrastructure, cementing its status as a key player in the AI boom CoinDesk – Hive Blockchain pivots to AI/HPC. An IPO is anticipated in 2025, and investors are evaluating CoreWeave’s trajectory – its revenue jumped from roughly $229 million in 2023 to nearly $2 billion in 2024CoinDesk – Hive Blockchain pivots to AI/HPC on the back of AI demand. CoreWeave’s story exemplifies how quickly the AI wave can turn a niche startup into an industry heavyweight by essentially becoming a specialized data center provider for AI.
- Marathon Digital Holdings ( NASDAQ: MARA ): Marathon is one of the world’s largest Bitcoin mining companies, operating massive “data center-like” mining farms primarily in the United States. The company’s facilities, which are often developed in partnership with hosting providers and energy companies, boast a combined hash rate exceeding 50 EH/s in 2025 – placing Marathon at the forefront of blockchain computing power International Energy Agency – Data Center Energy Outlook 2030. While its core focus is cryptocurrency (Marathon mines Bitcoin for its own account and sometimes hosts miners for others), the scale and infrastructure overlap with traditional data centers is notable. Marathon has been investing in energy-efficient mining and has expressed openness to integrating more diversified high-performance computing if advantageous. For investors, MARA stock is essentially a high-beta play on the price of Bitcoin – it tends to be volatile, as profitability swings with energy costs and crypto market conditions. However, Marathon’s growth underscores the concept that even crypto-focused data centers are part of the broader “digital infrastructure” universe. The company’s use of modern cooling and power techniques, and its push to source more renewable power for mining, also echo themes from the wider data center industry. Marathon illustrates that whether the compute cycles are for AI or crypto, the demand for physical space, electricity, and cooling ties back to the same real estate fundamentals.
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