From Wolf Street, August 4:
Boom, bust, and the adults in the room.
Investments in the construction of data centers in the US has exploded. But this construction spending on data centers does not include the amounts spent on AI-specialized semiconductors, memory chips, servers, networking equipment, etc., which has reached astronomical levels. The four biggest cash-richest companies – Microsoft, Alphabet, Meta, and Apple – project capital expenditures of over $210 billion in their current fiscal years, just those four. Compared to that, construction costs are mundane. But they show the trend.
Construction spending on data centers soared by 29% year-over-year to $3.5 billion in June, not seasonally adjusted, up by 366% since the beginning of 2022, and up by 430% in the seven years since mid-2018. The $1-billion-a-month mark was surpassed for the first time in May 2022.
Data center construction had already grown at a red-hot pace before 2022, but 2022 triggered panic mode when Microsoft, Alphabet, Meta, and Apple, plus lots of lesser companies such as Tesla, plus data-center specialists such as Digital Realty, Equinix, and CoreSite, a subsidiary of American Tower, plus PE firms, VC firms, and hedge funds, plus everyone and their dog began throwing mindboggling amounts of cash at the physical infrastructure for AI, including the buildings to house the servers.
The Census Bureau, which tracks construction spending of all kinds, considers data-center construction spending one of the main segments of office construction spending.
The rest of office construction spending (total office minus data centers, blue in the chart below) has plunged since 2022 when the commercial real estate sector of office began to spiral into a depression.
In dollar terms, the rest of office construction spending has plunged nearly as much as data center construction spending has soared. As a result, total office construction spending, including data centers, has increased by only 17% since 2022 and by 30% since mid-2018....
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