Data Centers: Is the Buildout Starting to Become a Bubble?

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Spending on U.S. data centers has soared in recent years, triggering concerns about how electricity providers will keep up with the expected construction of these electricity-gobbling facilities that power artificial intelligence (AI). For power providers, it's the ultimate good news-bad news story: they welcome the load growth but fret over their ability to provide the requisite electricity in a timely fashion.

There are signs that the spending surge, as large as it has been, is still in its early stage. In a recent news article, The Wall Street Journal asked if soaring data center investment, and eye-popping stock valuations tied to AI, are early signs the AI industry is entering speculative bubble territory, akin to the dot-com bubble of a quarter-century ago. Bubbles can pop without warning, creating ripple effects that affect investors, consumers and the broader economy.

Articles in other major news outlets, including The Washington Post, are asking the same thing. The Post article included comments from top tech executives warning the AI investment boom may be a bubble.

Investment in U.S. data centers soared to $40.4 billion in the second quarter of this year, according to the final revision to the second-quarter gross domestic product from the U.S. Department of Commerce (DOC), released September 25. That's 321% higher than the $9.6 billion companies invested in data centers in the first quarter of 2020, when the DOC first broke out spending on data centers. Since the January-March 2020 period, according to data from the department, companies have invested a cumulative $408.8 billion to build data centers.

Click on the image at right to see a U.S. Department of Commerce chart of capital spending for U.S. data centers, by quarter, since the first quarter of 2020.

The surge in spending was first reported by The Wall Street Journal.

Data tracked by Industrial Info suggest that the eye-popping level of investment since 2020 is just a taste of what's to come. Or the beginning of a data center bubble. Only time will tell.

Companies plan to make investments totaling about $841 billion in approximately 1,544 data center capital projects for the January 2025-December 2027 period. The states with the biggest planed data center capital investments are Texas, Virginia, Georgia and Arizona. Subscribers to Industrial Info's Global Market Intelligence (GMI) Industrial Manufacturing Project Database can click here for the project reports.

Click on the image at right to see an Industrial Info graphic of 10 states where developers plan to begin building data centers between January 2025 and December 2027.

Industrial Info does not expect all announced data center projects will be built according to the developers' initial plans. Some projects will be delayed or cancelled, for various reasons. Others will be announced. Suffice it to say it is an extremely dynamic industry that has extraordinarily aggressive growth plans.

By contrast, companies invested about $62.25 billion in 271 completed data center projects over the prior three-year period, January 2022-December 2024, according to IIR's GMI platform.

This past summer, the U.S. Energy Information Administration (EIA) predicted domestic data center electric demand will more than triple by 2050. For more on that, see July 1, 2025, article - EIA: U.S. Data Center Power Demand to More Than Triple by 2050.

But some see the early signs of a bubble. Over the summer, Amory Lovins, a longtime energy analyst who has emphasized the importance of energy efficiency and renewable energy, said the electric power industry was risking a "12-figure overbuild" with its plans to build new generation to serve data centers. Such an overbuild would amount to hundreds of billions of dollars in building unneeded electric generation capacity. Others, including some leaders at merchant electricity providers, have come to the same conclusion. For more on that, see August 20, 2025, article - Power Industry Considers Supply, Demand Options to Meet Future AI Power Demand.

David Pickering, Industrial Info's vice president of research for the Industrial Manufacturing segment, noted the many uncertainties over data center construction plans. "It's still early days, and we're in something of a Gold Rush mentality," he said. "Clearly, the Trump administration wants to 'win' the AI race with China. And Big Tech companies, such as Alphabet Incorporated (Mountain View, California), Amazon (Seattle, Washington), Microsoft Corporation (Redmond, Washington), Meta Platforms Incorporated (Menlo Park, California), Apple Incorporated (Cupertino, California), OpenAI (San Francisco, California) and Oracle Corporation (Austin, Texas), have announced plans to invest hundreds of billions of dollars to build new data centers."

"At a time like this," Pickering continued, "I like to recall a quip Joseph P. Kennedy made in late 1929, right before the stock market crashed. The U.S. economy was booming and stock valuations were soaring. One day, Kennedy, a stockbroker, was having his shoes shined and the shoeshine boy started giving him tips on which stocks he should buy. Kennedy, the father of future president John F. Kennedy, said, 'When I start receiving stock tips from the shoeshine boy, it's time to get out of the market.' Shortly thereafter, the stock market crashed, triggering the Great Depression."

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).