Data center risks are becoming painfully clear

It’s a mad dash to build the digital arsenal required for the ongoing AI arms race. Tech companies are trying to quickly build data centers, promising hundreds of billions in capex spending.

Amidst the scramble, experts and industry observers warn of the challenges facing these digital infrastructure projects.

Research firm Sightline Climate noted in a new report that between 30% and 50% of the data centers slated for 2026 are “unlikely to come online before the end of the year.”

Sightline recommended that hyperscalers “distinguish speculative pipeline from executable capacity.” Further, investors and lenders should separate the projects that “remain early-stage announcements” from those that have secured capital, permitting, and tenants, according to the report.

Data centers have become a political hot potato, with politicians, activists, and communities raising concerns over issues like energy usage and environmental impacts.

Data Center Watch reported that 20 projects representing $98 billion in investment were blocked or delayed in Q2 last year due to local resistance. “As political resistance builds and local organizing becomes more coordinated, this is now a sustained and intensifying trend,” the research firm noted in its report.

Lawmakers in six states are considering legislation “that will serve as outright bans on the construction of new data centers,” Don Johnson, chief economist at MacroEdge, recently noted in a post on the research firm’s Substack page. One such proposal, in New York state, would pause construction of data centers over 20 megawatts for three years, Politico reported.

Federal lawmakers aren’t sitting this one out. As Axios reported, a bipartisan bill in the Senate would prohibit consumers from paying higher utility rates resulting from new data centers. Joseph Hoefer, chief AI officer and principal at lobbying firm Monument Advocacy, told the outlet the bill could stall data center projects “because once you inject that level of power access uncertainty into the equation, financing tightens up very quickly.”

Politics aside, power demand is a major challenge for data centers. Gartner researchers reported in November that they anticipated global data-center energy demand would “double by 2030” to 980 Terawatt hours (TWh). Nearly half (44%) of that power consumption will come from “AI-optimized servers,” according to the research. (For reference, 1 TWh is enough energy to power nearly 97,500 homes for a year, according to the EPA.)

According to the Sightline research, tech firms are increasingly turning to on-site and hybrid power generation rather than relying solely on the grid. These “approaches remain niche,” accounting for less than one-tenth of announced projects, yet “represent nearly half of announced capacity.”

Recent acquisitions, such as Google’s planned $4.75 billion acquisition of data center power-generation company Intersect, show “a new willingness by hyperscalers to secure power at the project or portfolio level…in order to accelerate deployment,” Sightline noted.