{"id":258189,"date":"2025-11-02T19:41:07","date_gmt":"2025-11-02T19:41:07","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/258189\/"},"modified":"2025-11-02T19:41:07","modified_gmt":"2025-11-02T19:41:07","slug":"boom-or-bubble-inside-the-3tn-ai-datacentre-spending-spree-artificial-intelligence-ai","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/258189\/","title":{"rendered":"Boom or bubble? Inside the $3tn AI datacentre spending spree | Artificial intelligence (AI)"},"content":{"rendered":"

The global investment spree in artificial intelligence<\/a> is producing some remarkable numbers and a projected $3tn (\u00a32.3tn) spend on datacentres is one of them.<\/p>\n

These vast warehouses are the central nervous system of AI tools such as OpenAI\u2019s ChatGPT<\/a> and Google\u2019s Veo 3, underpinning the training and operation of a technology into which investors have poured vast sums of money.<\/p>\n

Despite concerns that the AI boom could be a bubble waiting to burst, there are few signs of it at the moment. The Silicon Valley AI chipmaker Nvidia last week became the world\u2019s first $5tn company<\/a> and Microsoft and Apple\u2019s valuations hit $4tn, the latter for the first time. A restructuring at OpenAI has valued the company at $500bn<\/a> and a stake owned by Microsoft at more than $100bn. This could lead to a $1tn flotation as early as next year.<\/p>\n

On top of that, Google\u2019s owner Alphabet has reported revenues of $100bn in a single quarter for the first time<\/a>, helped by growing demand for its AI infrastructure, while Apple and Amazon have also just reported strong results.<\/p>\n

It is not just the financial world, politicians and tech companies who have faith in AI: it is also the communities hosting the infrastructure behind it.<\/p>\n

In the 19th century, demand for coal and steel from the Industrial Revolution shaped the destiny of Newport<\/a>. Now the Welsh city is hoping for a new chapter of growth from the latest transformation of the global economy.<\/p>\n

On the outskirts of Newport, on the site of a former radiator factory, Microsoft<\/a> is building a datacentre that will help meet what the tech industry hopes will be exponential demand for AI.<\/p>\n

Microsoft is building a datacentre at Imperial Park, near Newport, Wales. Photograph: Dimitris Legakis\/Athena Pictures<\/p>\n

Standing on a concrete floor that will soon host thousands of humming servers, the Labour leader of Newport city council, Dimitri Batrouni, says the Imperial Park datacentre is a chance to tap into the economy of the future.<\/p>\n

\u201cWith cities like mine, what do you do? Do you worry about the past and try to bring steel back with 10,000 jobs \u2013 it\u2019s unlikely. Or do you embrace the future?\u201d he says.<\/p>\n

But despite the market\u2019s current positivity about AI, questions remain about the sustainability of the tech industry\u2019s outlay<\/a>.<\/p>\n

Four of the biggest players in AI \u2013 Amazon, Facebook parent Meta, Google<\/a> and Microsoft \u2013 have increased spending on AI. Over the next two years they are expected to spend more than $750bn on AI-related capital expenditure, meaning non-staff items such as datacentres and the chips and servers inside them.<\/p>\n

It is a spending spree that Manning & Napier, a US investment company, describes as<\/a> \u201cnothing short of incredible\u201d. The Newport site alone will cost hundreds of millions of dollars. Last week, the California-based Equinix said it was planning to invest \u00a34bn on a centre in Hertfordshire.<\/p>\n

In March, the chair of the Chinese e-commerce group Alibaba, Joe Tsai, warned he was seeing signs of excess in the datacentre market. \u201cI start to see the beginning of some kind of bubble,\u201d he said<\/a>, pointing to projects raising funds for construction without commitments from potential customers.<\/p>\n

There are 11,000 datacentres globally already, up 500% over the past 20 years. And more are coming. How this will be funded is a source of concern.<\/p>\n

Analysts at Morgan Stanley, the US investment bank, estimate that global spending on datacentres will reach nearly $3tn between now and 2028, with $1.4tn covered by the cashflow of the big US tech companies \u2013 also known as \u201chyperscalers\u201d.<\/p>\n

That means $1.5tn needs to be covered from other sources such as private credit \u2013 a growing part of the shadow banking sector<\/a> that is raising the alarm at the Bank of England<\/a> and elsewhere. Morgan Stanley believes private credit could plug more than half of the funding gap. Mark Zuckerberg\u2019s Meta has tapped the private credit market for $29bn of financing for a datacentre expansion in Louisiana.<\/p>\n

Gil Luria, the head of technology research at the US investment firm DA Davidson, says the hyperscaler investment is the \u201chealthy\u201d part of the boom \u2013 the other part less so, which he describes as \u201cspeculative assets without their own customers\u201d.<\/p>\n

The debt they are using, he says, could trigger ramifications beyond the tech industry if it goes sour.<\/p>\n

\u201cThe providers of this debt are so eager to deploy capital into AI, that they may not be properly assessing the risks of investing in a new unproven category supported by very quickly depreciating assets,\u201d he says.<\/p>\n

\u201cWhile we are at the early stages of this influx of debt capital, if it does rise to the level of hundreds of billions of dollars it could end up representing structural risk to the overall global economy.\u201d<\/p>\n

Harris Kupperman, a hedge fund founder, said in a blogpost in August that datacentres will depreciate twice as fast as the revenue they generate<\/a>.<\/p>\n

The $500bn Stargate site in Abilene, Texas is a collaboration between OpenAI, SoftBank and Oracle. Photograph: Daniel Cole\/Reuters<\/p>\n

Underpinning this expenditure are some lofty revenue expectations from Morgan Stanley, with revenues from generative AI \u2013 chatbots, AI agents, image generators \u2013 expected to grow from $45bn last year to $1tn by 2028. Tech companies are relying on businesses, the public sector and individuals to produce enough demand for AI \u2013 and to pay for it \u2013 to justify those revenue expectations.<\/p>\n

OpenAI\u2019s ChatGPT, the emblematic product of the AI boom, now has 800 million active weekly users, which is a boon for the optimists. But doubts have been raised over business takeup so far. For instance, investor faith in the AI boom was rattled in August when the Massachusetts Institute of Technology published research showing that 95% of organisations are getting zero return from their investments in generative AI pilots.<\/p>\n

The Uptime Institute, which inspects and rates datacentres, says many projects will not be built \u2013 an indicator that some are part of the hype machine and won\u2019t get off the ground.<\/p>\n

\u201cAn important point to understand is that a lot of this speculative,\u201d says Andy Lawrence, the executive director of research at Uptime. \u201cMany of the datacentres, often announced with a fanfare, either will never be built, or will be built and populated only partially, or gradually, over a decade.\u201d<\/p>\n

He adds that many of the datacentres announced in this multitrillion-dollar programme will be \u201ceither specifically intended to support AI workloads, or will mainly do so\u201d.<\/p>\n

Microsoft points out that its Newport datacentre will not be used solely for AI. As well as being the central nervous systems for AI systems such as ChatGPT and Microsoft\u2019s Copilot, datacentres do all the day-to-day IT work we take for granted \u2013 as providers of \u201ccloud\u201d services where companies rent out servers instead of buying their own: handling email traffic, storing company files and hosting Zoom calls.<\/p>\n

\u201cWe have a lot of ways to use this infrastructure. It becomes very much a general purpose technology,\u201d says Alistair Speirs, a general manager at Microsoft\u2019s cloud business.<\/p>\n

Elsewhere, though, are massive projects that are all-in on AI. The Stargate venture in the US is a $500bn joint venture between OpenAI, Oracle and SoftBank that aims to build a network of AI datacentres across the US. A UK version of Stargate<\/a> is also coming to North Tyneside in north-east England. Microsoft is building the word\u2019s most powerful AI datacentre in Fairview, Wisconsin, and is backing an AI-dedicated site in Loughton, Essex, while Elon Musk\u2019s xAI has built the \u201ccolossus\u201d project in Memphis, Tennessee.<\/p>\n

Work on an estimated 10GW of new datacentre capacity around the world \u2013 representing roughly a third of the UK\u2019s power demand \u2013 is expected to start this year, according to the property group JLL. However, this is the aggregate maximum capacity and datacentres typically operate at about 60%.<\/p>\n

A further 7GW will reach completion this year, according to JLL.<\/p>\n

Currently, global datacentre capacity is 59GW, so the pace of expansion is rapid and Goldman Sachs expects it to double by the end of 2030. This carries a further infrastructure cost of its own, according to Goldman, with $720bn of grid spending needed to meet that energy demand.<\/p>\n

At the Newport site, a native of the city, the construction safety specialist Mike O\u2019Connell, has returned as a consultant. After a career that has spanned oil rigs, offshore wind and datacentres around the world, he is back at his birthplace \u2013 now a tech hub that hosts datacentres and semiconductor companies.<\/p>\n

\u201cI am looking to stay in the local community,\u201d he says. O\u2019Connell\u2019s teenage grandson is starting work at the Newport site under an electrical apprenticeship. There is a belief, and hope, that datacentres such as this represent a generational employment opportunity for the area.<\/p>\n

Investors and tech companies, having pledged trillions of dollars, are counting on a long-term return, too.<\/p>\n","protected":false},"excerpt":{"rendered":"The global investment spree in artificial intelligence is producing some remarkable numbers and a projected $3tn (\u00a32.3tn) spend…\n","protected":false},"author":2,"featured_media":258190,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[256,254,255,64,63,105],"class_list":{"0":"post-258189","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-artificial-intelligence","8":"tag-ai","9":"tag-artificial-intelligence","10":"tag-artificialintelligence","11":"tag-au","12":"tag-australia","13":"tag-technology"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/258189","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=258189"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/258189\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/258190"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=258189"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=258189"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=258189"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}