BlackJack3D
By Michael McCarthy, CFA
As the AI revolution gathers steam, data centers have become a crucial pillar of the global economy—and a potentially prime target for private investors.
Think about this: In the next five years, consumers and businesses are expected to generate twice as much data as all the data created over the previous ten. At that rate, data centers and endpoint devices (such as laptops and mobile phones) will have to store 21 trillion gigabytes of data by 2027.1
Little wonder that private equity investors are training their sights on data centers to meet exploding demand for storage, processing and transmission of information.
Globally, there are now more than 1,000 large data centers operated by hyperscale providers—think Amazon (AMZN) and Google (GOOG), as well as lesser-known but increasingly large centers for lease. Spending on AI infrastructure—including data centers, networks and other AI-related hardware—is expected to compound at 44% a year and reach $423 billion by 2029.2
All that computing gobbles electricity, creating potential opportunities for data center developers that can meet those power demands. During the last decade, most new centers required not even 10 MW of energy to handle peak power loads; today, many developers are announcing new projects built to handle 100 MW or more.3 AI-related applications now inhale up roughly 20% of those electrons.4
ChapGPT—the popular chatbot from OpenAI, which now boasts 100 million weekly active users5—is a true power hog: According to the International Energy Agency, a single ChatGPT query requires 2.9 watt-hours of electricity, while the average iPhone battery holds a charge of around 5.456 watt-hours. At current usage levels, ChatGPT now draws as much daily power as 33,000 homes. (For more, see “AI In Your Pocket.”)
With power, of course, comes heat. That’s why we believe that properly cooling existing data centers will require further infrastructure investments to ensure electrical performance (see “The Realities of AI, in Watts and Liters”); furthermore, we think customer demand for sustainable energy solutions will mean that renewables could play a bigger role as operators shrink their environmental footprints.
All of these trends, in our view, are playing into the hands of private infrastructure investors. Between 2019 and 2021, private managers accounted for 65% of deal center activity, and a record 90% in 2022.7 While deal flow was comparably muted in 2023 due to macroeconomic factors, we expect the AI revolution will continue to catalyze private investment in the digital infrastructure sector.
Sources: (1) Revelations in the Global StorageSphere 2023, IDC, August 2023; (2) Global Artificial Intelligence (AI) Infrastructure Market – Industry Trends and Forecast to 2029, Data Bridge Market Research; (3) Cloud to Edge Datacenter Trends, International Data Corp; (4) JLL Research, Data Centers 2024 Global Outlook, January 2024; (5) OpenAI’s ChatGPT now has 100 million weekly active users, TechCrunch, November 2023; (6) Forbes, How Much Electricity Do Your Gadgets Really Use? Christopher Helman, April 2022; (7) Private Equity Totally Dominated 2022 Data Center M&A Deals, Breaking All Previous Records, Synergy Research Group, January 2023.
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