U.S. Data Center Power Capacity Set to Double by 2027: A Booming Opportunity for Investors Amid AI Surge
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Introduction
In a recent note from Morgan Stanley, it was revealed that the power capacity of U.S. data centers is projected to nearly double by 2027. This surge is primarily driven by the increasing demand for high-performance computing (HPC) necessary to support Generative AI (GenAI) technologies. For investors and financial market observers, this presents a significant opportunity.
Power Capacity Projection
Morgan Stanley's research highlights a sharp rise in data center power capacity from 40 gigawatts (GW) in 2024 to an impressive 79 GW by 2027. This growth is set to accommodate the burgeoning needs of AI technologies, which are rapidly transforming various sectors.
Global Impact
On a global scale, the bank forecasts that power usage for GenAI will escalate from 68 terawatt-hours (TWh) in 2024 to a staggering 378 TWh by 2027. Consequently, total global data center power usage is expected to increase from 443 TWh in 2024 to 877 TWh by 2027.
Asset-Backed Securities Market Surge
Reflecting the data center market's expansion, the asset-backed securities (ABS) market is also experiencing substantial growth. Morgan Stanley notes that data center ABS issuance is on track to hit a record $8 billion in 2024, with the total outstanding amount reaching $25 billion—marking a 37% year-over-year increase. If current trends persist, the ABS market could soar to $49 billion by 2027.
Cost and Construction Timeline
The anticipated data center expansion involves significant investments, with new builds estimated to cost between $30-$34 million per megawatt (MW) for complete setups, or $8-$12 million per MW excluding GPUs and servers. However, the time required to bring new data centers online is increasing, particularly in regions like California, where projects can take up to 125 months.
Importance of Retrofitting
Given the extended timelines for new constructions, Morgan Stanley underscores the importance of retrofitting existing data centers to meet immediate AI and HPC data processing demands. This strategy can help bridge the gap while new facilities are being developed.
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Analysis for Everyday Investors
What This Means for You:
- Investment Opportunities: The doubling of data center power capacity signifies a robust growth opportunity. Companies involved in data center construction, AI technology, and related infrastructure stand to benefit significantly. Consider investing in stocks or funds that focus on these sectors.
- ABS Market Growth: The substantial increase in data center ABS issuance offers another lucrative avenue. Asset-backed securities tied to data centers could provide a solid return on investment, given the market's projected growth.
- Retrofitting Potential: The emphasis on retrofitting existing data centers, especially those used for bitcoin mining, suggests a potential niche market. Companies specializing in retrofitting services could see increased demand and profitability.
In Simple Terms:
- Data Centers Are Expanding: U.S. data centers will need more power to support advanced AI. This means more facilities and more investment opportunities.
- Global Energy Use Will Rise: Expect a significant increase in global energy consumption due to AI and high-performance computing.
- Investment in Infrastructure: The growth in the data center market will also boost the asset-backed securities market, indicating a healthy investment environment.
- Retrofitting Existing Centers: Given the long timeframes for new builds, updating current facilities will be crucial to meet immediate demands.
Understanding these trends can help you make informed decisions about where to invest your money and how to capitalize on the booming data center and AI markets.