Data centers: A physical drag on the AI boom

The data center boom has “entered a new, contradictory phase,” said Brian Martucci in Utility Dive. Construction activity on the massive warehouses filled with AI servers “remains robust.” But several billion-dollar projects are facing “a host of challenges,” including worker shortages, a lack of gas turbines, grid constraints, permitting delays, and widespread community opposition. The problems came to a head recently in New Mexico, when Oracle issued an unusual force majeure notice—normally reserved for insurance against “acts of God”—to “protect itself financially from the delay or cancellation” of its so-called Project Jupiter, after state regulators “blocked a gas pipeline proposed to serve it.” Google has also recently had to halt work on two data centers in Finland after a local outcry spurred an environmental review, while a Microsoft project in Michigan “faces an uncertain future amid local permitting delays.” Goldman Sachs estimates only 50% of planned data-center capacity may actually come to fruition in the near term.

That means the AI boom may soon hit a bottleneck, said Asa Fitch in The Wall Street Journal. Tech giants need “lots of data centers and electricity” to fulfill their ambitions, but the “delays are biting.” The amount of electricity demanded by data centers globally in the next two years “is enough to power around 118 million homes.” It’s curious that “chipmakers aren’t yet blaring their sirens” about the capacity squeeze. Possibly, that’s because they can’t even accurately tell “how much is being built”—and how much is being idled.

This “cornucopia of holdups” should be a wake-up call for investors, said Chris Bryant in Bloomberg. AI companies are spending billions “to secure precious supplies of computer memory” from chip makers like Nvidia and AMD. But if they can’t build data centers, they could end up “with too many chips and not enough operable server farms.” Almost half of the U.S. data-center pipeline is being built by first-time developers who have jumped into the gold rush, making big promises they might not deliver. It’s a “high-stakes game of musical chairs,” where losers will be left holding chips “without a seat.”

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“Why assume the data center has reached its final physical form?” asked Todd G. Buchholz in The Washington Post. Historically, as technology has advanced, it’s gotten smaller. In 1946, a computer “took up the size of a house”; now it “fits in the palm of one’s hand.” Likewise, we can safely assume that the land, electricity, and equipment needed to produce a unit of intelligence will keep dropping. “That’s why communities should welcome new investment but insist that developers pay the costs of power, water, and grid upgrades.” The benefits from the technology will last for years, but the size of the physical footprint will not.