That is projected to rise to $500b next year.

Investment in software and computer equipment, not counting the data centre buildings, accounted for a quarter of all economic growth this past quarter, data from the US Commerce Department shows.

Even that probably doesn’t reflect the whole picture.

Government data collectors have long had trouble capturing the economic value of semiconductors and computer equipment that large tech companies like Meta and Alphabet install for their own use, rather than farming out to contractors, so the total impact is likely to be higher.

The big tech companies are the largest financiers of the frenzy, but private equity firms have been pouring in capital, too.

Brookfield Asset Management, which manages a vast real estate portfolio, estimates that AI infrastructure will sop up US$7 trillion over the next 10 years.

The torrent of cash comes as the effects from Biden-era infrastructure subsidies fade, erratic tariffs freeze corporate decision-making and high borrowing costs deter less lucrative real estate projects such as housing and warehouses.

In 2025, spending on data centre construction – not including the cost of all the technology they house – will exceed investment in traditional office buildings, according to the Dodge Construction Network.

“The expectations of very high returns in this industry are trumping the high interest rates that we are facing today,” said Eugenio Aleman, chief economist with financial services company Raymond James.

Companies are promising even more spending, but their ability to deliver, he noted, depends on whether their expectations are fulfilled.

Most AI tools are not profitable, and they will have to generate huge cash flows over time for the tech companies to recoup their investments.

“There is always a risk that very little of what they say is going to pan out,” Aleman said.

“So whenever they figure out that it is not what they thought, there is going to be a large correction.”

For now, everyone wants a piece of the spending.

To understand the excitement around booming AI use, it’s helpful to take a spin through corporate quarterly earnings calls.

Publicly traded construction firms, electricity providers and electronics manufacturers are eagerly telling investors they can get a piece of the action:

Data centres are also attractive to traditional construction companies, which see the opportunity to shift from their typical real estate development projects into a new asset class with ample capital behind it.

Skanska, a large contracting firm, forecasts that data centre construction will average 13.2% annual growth through 2029, a far speedier rate than any other sector it tracks.

The American Cement Association, an industry group, estimated that the sector would require 1 million tonnes of cement over the next few years.

One of North America’s largest building materials suppliers, Amrize, developed an “AI optimised” concrete mix with Meta that has lower carbon emissions. Amrize said data centre construction was a “bright spot” in its otherwise soft second quarter.

The boom has also been good for electricians, engineers and heavy-equipment operators.

Although data centres that are up and running typically employ only a small number of people, the construction phase can put thousands to work.

That’s part of the reason why US construction employment has remained steady even as housing, office and warehouse projects have dried up.

How long can the spending last?

The intensity of the AI investment wave has raised uncomfortable parallels to the last time the tech industry funnelled billions of dollars into infrastructure to support a new technology with high expectations of future profits.

In 2001, after the stock market crash brought on by the collapse of speculative dot-com companies, the telecommunications sector crumpled, too. Companies that had taken on debt to build out fibre-optic networks failed, creating an implosion that rippled through the global economy.

Already, there are a few signs of caution.

The chief executive of OpenAI, Sam Altman, raised eyebrows this month with remarks that the sector is “over-excited” and that some players will lose a lot of money.

UBS, while generally positive on the industry, wrote in a note to clients that there could be some “indigestion” over the capital expenditures under way.

At the moment, investors are reassuring themselves that a pullback would not be catastrophic.

For one thing, data centres are financed by a diverse group of lenders, reducing the exposure of any one part of the banking system.

Leases generally have long terms with hard-to-escape contracts, which could insulate landlords even if their deep-pocketed tenants had to walk away.

For another, even if AI use doesn’t live up to the hype, the internet is expanding quickly.

The flood of data centre capacity in the pipeline is still likely to be absorbed, even if more slowly than it is now.

Vacancy in leased data centres – that is, those that aren’t owned by their users – is close to zero. Future developments are usually spoken of ahead of time, according to JLL, the real estate professional services firm.

“If we think about just general data creation and data storage, that has been growing at a rapid pace for decades, and that will continue to grow,” said Andrew Batson, JLL’s head of data centre research for the Americas.

“At some point, there will be some natural slowdown in demand, but that’s not in our near-term forecast.”

He expects the sector will keep growing about 20% annually through to at least 2030.

In the coming years, the most significant constraint on data centre growth is more likely to be supply: The energy, water, workers, and technical equipment required to construct and run them are all getting more expensive.

At the same time, local communities, once eager to attract data centres, have occasionally soured on them.

In the latest example, the City Council of St. Charles, Missouri, placed a one-year moratorium on new facilities over concerns about drinking-water contamination.

“There’s a ton of money going into it, but at some point the cost is going to bite,” said Eric Gaus, chief economist with Dodge Construction Network, which closely tracks new developments.

“You’ve got the locals who are saying, ‘If you’re going to put something here, you need to do more than just build it and walk away.’”

This article originally appeared in The New York Times.

Written by: Lydia DePillis

Photographs by: Christie Hemm Klok

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