Spending on data centers could help grow the US economy by 10 to 20 basis points by the end of 2026, according to a J.P. Morgan estimate. The GDP boost would come primarily through demand for data center construction, technology equipment investment, and additional power generation and transmission infrastructure, the firm said, according to an account in Reuters.
The sector is enjoying momentum driven by artificial intelligence, which requires increased computing power. Companies shifting their operations to the cloud and integrating AI into their offerings are further driving the data center sector.
Tech companies Microsoft and Alphabet have been investing heavily in AI-related investments. Last year, spending on data centers contributed between 0.1% and 0.3% to GDP growth, J.P. Morgan estimated. Each 5-10 gigawatt in new capacity could require $20 billion in spending, equivalent to 7 bps of GDP, the brokerage said. That does not include costs related to new power generation. Power consumption is expected to reach record highs over the next two years, and the Biden administration recently outlined a plan to provide federal support to address the energy needs of advanced AI data centers, according to Reuters.
“The data center boom will likely play out for at least a couple more years given ongoing gains in AI innovation and its potential to deliver a positive economic impact," said J.P. Morgan. "Whether that growth continues well into the second half the decade will then depend, similar to the telecom (boom) episode, on whether the expected return on these investments is realized."