Microsoft CEO Satya Nadella and Meta CEO Mark Zuckerberg riffed on AI, productivity and building out infrastructure this week at the LlamaCon developer conference and inadvertently touched on concerns about the great AI infrastructure buildout.
Nadella, who was on stage with Zuckerberg, talked about AI as a productivity enhancer as great as electricity was. Nadella said:
"AI has the promise to deliver real change in productivity and that requires software and management change. People have to work with it differently. What happened with electricity? It was there for 50 years before people figured out they had to really change the factories to use electricity differently. It was a famous Ford case study. To me, we are somewhere in between. I hope we don't take 50 years. Tech has to progress and you have to put that into systems to actually deliver the new workflow."
Zuckerberg, who is doubling down on AI spending, quipped:
"We're all investing as if it's not going to take 50 years so I hope it doesn't take 50 years."
That exchange largely sums up concerns about the AI data center buildout as Google, Meta, Microsoft and Amazon report results followed by Nvidia a few weeks from now. Most of the consternation about data center overcapacity revolves around whether the insatiable demand for Nvidia GPUs will continue. I'll give you the spoiler alert: That demand won't continue. All of Nvidia's big buyers are also developing custom silicon in addition Jensen Huang's stack. Supply and demand will balance out.
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However, the data center buildout is a way more nuanced topic. GPU demand could stagnate and even fall, but the big picture is that spending on newfangled AI factories will continue. Why? Time frames are vastly different. The AI-optimized system is just one part of the equation. You could stop buying AI gear tomorrow and still need to invest in the data center shells, power and cooling and building permits for the next three years. Once those other parts of the AI factory in place you can simply buy Nvidia gear three or four generations from now.
Simply put, buying Nvidia's latest and greatest is an annual decision. Building a functioning data center is a three- to five-year decision.
With that backdrop in mind, I took the pulse of the data center buildout and aggregated comments from CxOs at every level of the data center stack. Here's a look at the nuance.
CenterPoint Energy CEO Jason Wells:
“Since we submitted our forecast to ERCOT at the end of January, our load interconnection queue has grown by another seven gigawatts through 2031. This represents a nearly 20% increase in load interconnection requests in a little more than two months.
This significant increase is driven by a diverse set of load growth factors, including industrial customer demand, data centers and transportation electrification projects.
You had a seven gigawatt increase in our interconnection queue that I mentioned. So, on the fourth quarter call, a little over two months ago, we said that we had a 40-gigawatt interconnection compute now it's 47 gigawatts, six of that is related to incremental data center demand our data center queue is now roughly 20 gigs.
We’re starting to grow a larger ecosystem here in the Greater Houston area. We've had some really high-profile high-tech manufacturing announcements with Foxconn, Apple, NVIDIA all looking at rapidly expanding their production of their server racks, everything but effectively the chips.
And I think that significant investment in that kind of data center ecosystem is also continuing to attract data center demand. And so, it has really been an explosive level of growth for us, really starting back to last summer.”
Alphabet CFO Anat Ashkenazi:
"With respect to CapEx, our reported CapEx in the first quarter was $17.2 billion primarily reflecting investment in our technical infrastructure, with the largest component being investment in servers, followed by data centers to support the growth of our business across Google Services, Google Cloud, and Google DeepMind.
in Cloud, we're in a tight demand supply environment and given that revenues are correlated with the timing of deployment of new capacity, we could see variability in cloud revenue growth rates depending on capacity deployment each quarter.
We expect relatively higher capacity deployment towards the end of 2025. Moving to investments, starting with our expectation for CapEx for the full year 2025. We still expect to invest approximately $75 billion in CapEx this year. The expected CapEx investment level may fluctuate from quarter-to-quarter, due to the impact of changes in the timing of deliveries and construction schedules."
PG&E CEO Patti Poppe:
“We've updated our data center project pipeline from the year-end call. And as you can see, our pipeline has grown from 5.5 gigawatts to 8.7 gigawatts.
We are privileged to serve California, including the Bay Area, which has the fiber network enabling speed and reliability for data center customers and also the density of talent needed to maximize the potential of artificial intelligence.
We have 1.4 gigawatts in final engineering comprised of 18 projects. To-date, these have not been the mega data center project designed to power large language learning models. Rather, the demand in our service area has been mostly from customers looking to power inference models which are driving value for their businesses, true Goldilocks demand, big enough to matter, not so big that it's a problem.
And what's exciting about Northern California, and this is why we call it Goldilocks, is that these are inference model size data centers. The bulk of them are the 100-megawatt or so inference model data centers, imagine a data center that's designed to do -- to serve multiple tech companies who are using AI in their daily business, so they need more compute power. That's what we're able to serve.
So these aren't single silver shovel projects as we talk about. These are a variety of smaller projects that will go through because that demand for compute power is real, particularly here in the Bay Area where we have this density of technical talent who can leverage AI. So this trend is absolutely real for us."
Digital Realty Trust CEO Andy Power:
“Despite the headlines, demand for data center capacity remains strong and our value proposition continues to resonate, evidenced by nearly $400 million of new leasing completed in the quarter, or $242 million of new leasing at Digital share, with healthy contributions from both our major product categories.
This year we announced our first U.S. Hyperscale Data Center Fund, continuing to evolve our funding model and further expanding the pool of capital available to support the growth of hyperscale data center capacity. The fund offers a unique opportunity for private institutional investors to invest directly in hyperscale data centers alongside the world's largest data center provider. It is dedicated to investing in high-quality hyperscale data centers located across top-tier US metros, including Northern Virginia, Dallas, Atlanta, Charlotte, New York Metro and Silicon Valley.
We've seeded the portfolio with five operating assets and four land sites for data center development and have received very strong interest and limited partner commitments from some of the world's savviest investors, including sovereign wealth funds, pension funds, insurance companies, endowments and other institutional investors. The fund will support approximately $10 billion of hyperscale data center investment, enabling us to serve the robust demand of our customers, while enhancing our returns through fees.”
Schneider Electric CFO Hilary Maxson:
“In data center, we continue to see strong double digit demand with continued strength in North America and East Asia. This strong growth trend already starts to include adjustments made by certain customers and is indicative, we believe, of the true underlying trend for data centers, which we expect to continue aligned with the expectations we shared at our Capital Markets Day and again in 2024.
We also expect continued strong demand for systems led by data center and infrastructure projects.”
Schlumberger Limited CEO Olivier Le Peuch:
“We also saw continued growth momentum in our data center infrastructure solutions business in this region.
Customers are accelerating the adoption of digital and AI solutions to extract further efficiencies and performance across the upstream lifecycle -- both in planning and in operations across development and production.
Over the past 2 years, we have engaged hyperscalers, whom we partner with in digital, to unlock new opportunities for our business through the development of data centers. This resulted in a significant contract award for the provision of manufacturing services and modular cooling unit, which we are currently fulfilling.
Based on our performance and unique capabilities, we are also gaining access to a new opportunity pipeline, and we are expanding our technological offerings with low-carbon solutions to serve new potential customers. Overall, this is a very exciting and fast-growing market driven by AI demand, and we expect it to contribute to our diversified exposure beyond oil and gas in the coming years.
We will have at the end of this year -- supported more than 15 data center solutions across the US. That’s something we're proud of. You can see all of this as a sum of business that it will grow at a higher rate than the oil and gas sector for the years to come.”
FirstEnergy CEO Brian Tierney:
“We remain excited about the data center development we are seeing across our footprint. Our plan through 2029 includes 2.6 gigawatts of data center demand that is active or contracted with more in the project pipeline that would be incremental to our base plan.
Earlier this month, Meta announced an investment of more than $800 million to build their new Bowling Green data center in our Toledo Edison service territory and is expected to come online by the end of the year. This data center will be optimized for Meta's AI workloads. The transmission CapEx associated with this facility is included in the current capital plan.
In the first quarter of this year, we received 15 large load study requests for data centers, representing approximately 9 gigawatts of load. 11 of these studies are for locations in Pennsylvania and Ohio. We have not experienced any slowdown of data center interest in our service territory. We are also excited about the significant growth opportunities for transmission investment.”
GE Vernova CEO Scott Strazik:
“We start with the markets. We continue to see very strong end markets in Power and Electrification. Put simply, the world is entering an era of accelerated electrification, driven by manufacturing growth, industrial electrification, EVs and emerging data center needs, which is driving an unprecedented need for investment in reliable baseload power, grid infrastructure and decarbonization solutions.
As supply chains become more decoupled with more redundancy built into the global system to manage trade complexities, this manufacturing build-out creates incremental demand for additional electrons. To put today's investment super cycle into perspective in terms of energy needs and decarbonization, the scale of load growth we're seeing in North America is the most significant since the post-World War II industrial build-out.”
CBRE CEO Bob Sulentic:
“As it relates to data centers is we're a service provider, not an owner. And we had a really good quarter with data centers. We have a data center services business that includes an M&A deal we did called Direct Line which provides some additional technical services that go beyond what we had done historically. Very good quarter for that business. That acquisition is meaningfully outperforming underwriting.
Turner & Townsend is a big project manager, the creation of new data centers. They have a lot of work going on. They have seen some pullback from some of the hyperscalers that we've all read about. But they're pretty much at capacity in terms of their ability to do that kind of work. So you're not seeing that impact us. Trammell Crow Company has kind of a unique role in the data center world. They are in a position to acquire land and create the improvements you need on land, both the kind of soft improvements in terms of entitlements and then the hard improvements in terms of gaining access to electricity that makes that land a lot more valuable than it was when they acquired it. We've seen a good start to the year and expect it to be a strong finish to the year.”
