AI Revolution Will Add Fuel to Data Center Boom, BlackRock Says

Investment giant BlackRock sees significant potential for massive data center growth in the coming years, fueled largely by demand for AI workloads.

In the company’s mid-year 2024 global outlook presentation this week, BlackRock highlighted the pivotal role data centers are set to play in the coming years.

As the world undergoes a technological transformation comparable to the Industrial Revolution, the investment firm expects data centers to cement their position as critical infrastructure components.

Amid the surging demand for AI, the need for data centers is expected to skyrocket in the near future.

“If we look at the growth of AI data center, it is expected to increase on an annual basis somewhere between 60 to 80% in the coming years,” Wei Li, BlackRock global chief investment strategist, commented during a press briefing on Tuesday (July 9).

Data Centers are the Engine of the AI Revolution

In response to a question from Data Center Knowledge about the role of data centers in BlackRock’s overall outlook, the executives were overwhelmingly positive. However, they also noted that the digital infrastructure sector was not without its challenges.

Jean Boivin, head of the BlackRock Investment Institute, said many different things need to happen to enable the AI revolution and the potential productivity gains that might come as a result.

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Boivin noted that the estimate for data center growth that Li stated is largely based on expectations from industry analysts about what is expected to happen over the next few years.

Li added that the 2024 Midyear Global Outlook report outlines how the race to scale up AI capabilities is already spurring major capital spending. “AI and the low-carbon transition could spur historically large capital spending – and in a much shorter space of time than previous technology revolutions,” the report reads.

Li noted that BlackRock’s estimates already forecast a capital spend on AI that’s comparable with the biggest capital expenditures in history, across large global transformations including the Industrial Revolution.

Data Center ‘Construction Frenzy’

Over recent months, BlackRock has been pouring money into data centers to capitalize on the growing interest in AI.

“We have made [investments] across a series of our funds in data center developments here in the United States, in Northern Virginia, as well as in Germany, in Frankfurt, through some partnerships,” said David Giordano, global head of climate infrastructure at BlackRock.

Data center analysts have been tracking the growth of the industry closely. “The data center construction and expansion frenzy is well underway as it began quite some time ago to meet secular demand drivers and strong cloud services demand,” Alan Howard, principal analyst at Omdia, told Data Center Knowledge. “The pandemic was a significant catalyst to driving up digital infrastructure demand, and new demand from AI has come along and ramped up data center demand once again.”

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Looking ahead to the second half of 2024, Howard said: “The stage is pretty much set in terms of construction, but what we’ll continue to see beyond some construction starts is more announcements for projects and initiatives in anticipation of continued demand growth.”

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He added: “The investment community, particularly private equity infrastructure funds, have been investing heavily in data centers for a long time, but the AI opportunity will breathe more new life into the industry as capital is plentiful for well-vetted data center projects.

“There are many things that could temper the explosive growth of AI, and it’s a complex web of interconnected market dynamics, but one of the main issues is a combination of AI hardware supply chain, the cost, and the data center infrastructure needed to run the hardware.

“These factors have the potential to drive many AI consumers to adopt AI services from hyperscalers or other T2 cloud service providers. That evolution will take a couple of years to play out, and the wild card will be how AI server manufacturers drive competition with Nvidia. There’s a lot of moving parts.”

Additional reporting by James Walker.