Will the data center gold rush come to an end? Generative AI has taken the world by storm, despite the lack of proven revenue opportunities and huge legal challenges; where does the hype head next, and what happens to data center demand?"

Will the data center gold rush come to an end? Generative AI has taken the world by storm, despite the lack of proven revenue opportunities and huge legal challenges; where does the hype head next, and what happens to data center demand?

"This short brief is focused on data center demand and the role of generative AI in spurring an uptick in investments, particularly in the webscale sector. This brief supports our pending capex forecast update.

Generative AI (GenAI) in all its evolving flavors has captured the attention of the ‘investment community’ – there is a feeling that GenAI is a once in a lifetime opportunity where the early winners have the potential to dominate for decades. This has happened before with other technology breakthroughs and the hype usually dies down.

It’s not news that data center spending is surging thanks to widespread enthusiasm for GenAI. The announcements keep on coming. New financial vehicles arising to fund all this new infrastructure. With this, a more widespread appreciation of how power-hungry computers actually are – especially the massive clusters of computers prevailing in webscale data centers, now dominated by GPU servers. Energy consumption has doubled in the webscale sector since 2019. Since COVID, the webscale sector has become more energy intensive, not less; in 2021, 59 MWh of energy was consumed per US$1M in revenues. That figure grew to 65 in 2022 and 70 in 2023. This is notable, as webscalers are supposed to be able to exploit their size in order to get efficiencies from scale; it’s going the opposite direction with data center power consumption. And energy intensity is likely to keep rising with big commitments to GenAI. Inadequate access to affordable, renewable power is one of many challenges faced by the GenAI market. Despite these challenges, data center spend is likely to remain elevated for a few quarters, driven by the webscale market. There is a race underway to train and evolve these new AI models. There is a feeling that the early winners will be able to preserve their advantage for many years. Hence there is a land grab underway: for skilled developers, for tools, for energy capacity, and for land.