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Data centers have existed for some time to store digital data for cloud computing, fintech, and more. But they've gone into overdrive to supply the compute needed to fuel artificial intelligence (AI) development, with substantial power required for the training and inference that enable AI to respond quickly and accurately to queries and commands.
Companies have been building more data centers to keep development going, but not everyone is on board. People whose neighborhoods are seeing data centers go up are complaining about the rising energy costs that come with them, and with Democrats taking over Congress and several state governorships, the build-out might be at risk. Here's why, and how it impacts investors.
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Forecasted data center revenue for this year is $572 billion, according to Statista, and according to the World Economic Forum, global data center investment could reach $7 trillion by 2030.
However, new regulations may impede further growth in the near term. Texas governor-elect Gina Hinojosa has pledged to halt data center development until the government brings residents to the table to hear their concerns. Texas accounts for 25% to 30% of planned U.S. data centers, more than any other state, according to banking data compiled by tech analyst Dan Ives. There are new Democratic governors in Ohio, Georgia, and Michigan as well, all states with high data center potential, and they all plan to follow her lead.
Hyperscalers like Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), Meta Platforms (NASDAQ: META), and Space Exploration Technologies (NASDAQ: SPCX) are building the data centers, and SpaceX is even renting out its compute power to competitors like Anthropic and Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL).
These companies weren't too adversely affected by the tech sell-off last week, since they're already the leaders in the area and have compute power to drive their businesses right now. The consensus is that even if some data center construction is halted, these companies already have ample compute power to drive development. Investors are also happy that these companies may be forced to slow down, since AI spend has skyrocketed.
Beyond the state-specific moratoriums, there could be tighter safety and environmental protocols that data center builders must meet, which could increase costs and lead to longer timelines. Several companies said they're going to get better at building bridges with local governments, and ChatGPT's parent company, OpenAI, said it's going to work with local residents to get their input and explain how data center development could benefit their neighborhoods.
While the hyperscalers seem to have escaped negative market reaction, that wasn't the case for the data center chip suppliers like Nvidia (NASDAQ: NVDA) and Broadcom (NASDAQ: AVGO), whose stock prices fell after the elections. These "pick and shovel" stocks could slow down if data centers are built at a slower pace, and that could negatively impact their stocks in the near term.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Meta Platforms, Microsoft, Nvidia, and Space Exploration Technologies. The Motley Fool has a disclosure policy.
Did the Midterms Just Put the AI Data Center Boom at Risk? was originally published by The Motley Fool
