Data Centers: Too Much of a Good Thing?

The lure of riches and tight capacity today has money flooding into the construction of artificial intelligence (AI) data centers. Data center construction—just the cost of building the building—has increased to an annual rate of $43.0 billion, up 30% y/y and 322% higher than $10.2 billion four years ago (chart). Add in the costs of chips and servers, and you’re talking about real money.

 The irony is that, typically, the more money that floods into an area, the less likely any of the players will make the same juicy profits that attracted them, reaped in the years before the spending boom. Cloud providers like Microsoft, Alphabet, and Amazon enjoyed 20%-30% annual revenue growth rates last year. So it’s understandable that players like Oracle, xAI, Meta, and others would jump into the lucrative market.