According to a recent report from Newmark, capital deployment in data center construction in the United States reached a record $31.5 billion in 2024. The growth in the sector is showing no signs of slowing down, with the development pipeline expanding rapidly and continuing to meet the demands of an increasingly digital world driven by AI and hyperscalers.

AI Powers Data Center Growth

The primary catalyst for the surge in data center investment is artificial intelligence (AI). Hyperscalers—the giant tech companies that operate large-scale data centers to support cloud computing and other digital services—are playing a key role in this growth. Major companies like Meta, Microsoft, and Alphabet are set to increase their spending on data centers in 2025, building on their investments in 2024.

The development pipeline in 2024 saw nearly 50 million square feet of new data center space, doubling the volume from just five years ago. In particular, hyperscalers have inked major transactions for data center campuses ranging from 400MW to 900MW, with a groundbreaking 1GW project expected to kick off in 2025.

It’s no surprise that AI is driving much of this growth. The report stated that AWS, which saw a revenue of $100 billion in 2024, has projected $100 billion in capital expenditures for 2025. Other tech giants like Microsoft, Google, and Meta also have aggressive capex plans for 2025, expecting to invest $80 billion, $75 billion, and $65 billion, respectively, into expanding their data center networks.

‍Challenges with Power Constraints

While the data center industry continues to boom, power constraints are becoming a significant challenge. Projections indicate that power demand from existing and planned data centers could exceed the supply from utilities by around 50 percent. This gap is pushing developers to explore alternative energy solutions, including natural gas-fired power plants and small modular nuclear reactors (SMRs).

Over the past year, several SMR firms have signed agreements with data center operators to provide innovative solutions. Kairos and Deep Fission are among the firms entering the market, with Oklo, backed by Sam Altman, being the most active. In January, Oklo entered into a memorandum of understanding (MoU) with RPower to deploy a hybrid energy model combining natural gas and nuclear power for data centers. The company also signed agreements with major players like Equinix, Prometheus Hyperscale, and Switch, and has a customer pipeline exceeding 14GW of power.

AWS has also formed partnerships with companies like Energy Northwest, X-Energy, and Dominion Virginia, aiming to deploy over 600MW of power in Washington and Virginia.

Top Data Center Locations and Regional Growth

In terms of development site purchases, Northern Virginia remains the top region for data center expansion, accounting for one-third of all development site transactions by hyperscalers. However, data center development is increasingly occurring across the United States, with emerging markets like Pennsylvania, the Carolinas, and Texas becoming popular destinations for data center companies.

West Texas is particularly standing out as a prime location for data centers due to its abundant and inexpensive power supply. The first phase of the Stargate data center project is expected to begin in Abilene, Texas, with major investments from Microsoft in San Antonio for its Azure cloud services. Google and AWS are also planning facilities in the area.

In addition to traditional data centers, the region has experienced an influx of cryptocurrency mining data centers, which have a combined 9.1GW of potential capacity across at least 17 announcements in the past three years. Cipher Mining is one of the leading players, with 75,000 mining rigs deployed across sites in Odessa and Alborz, Texas.

The Future of Data Centers in 2025 and Beyond

Looking ahead, the data center industry is expected to continue growing rapidly, with no signs of slowing down. The report highlights that even with DeepSeek’s cost-efficient AI models, hyperscalers are not likely to reduce their capital expenditures. Companies like Amazon already offer DeepSeek models on their platforms, and other tech giants are set to follow suit, continuing to push the demand for data center expansion.

However, as competition for skilled labor increases, data center developers will face challenges in competing with other major construction projects, including those in the manufacturing and infrastructure sectors. This labor scarcity could slow the pace of growth despite high demand, but the industry's innovative solutions—such as SMRs and new energy sources—could help mitigate these concerns.

Capital Investment Continues to Surge

As 2025 approaches, the report projects that capital investment in data centers will continue its upward trajectory. Developers are focused on meeting the increasing demand for cloud services, AI infrastructure, and edge computing, ensuring the long-term growth of the data center sector. With AI-driven demand and infrastructure expansion, 2025 promises to be another record-breaking year for data center development in the U.S.

Originally reported by Niva Yadav in Data Center Dynamics.