Data Center Leaders on Building AI’s Infrastructure

Summary

This transcript explores key trends and challenges in the data center industry, focusing on location, power generation, and the growing demand for computing power driven by AI and cloud computing. It highlights how certain locations, like Ashburn, Virginia, remain crucial due to their connectivity, and addresses the significant power demands faced by the industry. The conversation emphasizes the importance of renewable energy, micro-grids, and smart power solutions, while also touching on investment strategies that prioritize credit quality and strategic location. As AI and inference computing evolve, data center infrastructure and its energy requirements will continue to play a pivotal role.

Takeaways

• 😀 Churn in data center leases is remarkably low, with only 86 basis points of churn, indicating strong tenant retention.
• 😀 Rental rates for data center renewals have increased by about 22% on average, defying initial projections of a decline.
• 😀 Location is a key factor for data centers, with Ashburn, Virginia, being a particularly critical area due to its role in internet traffic.
• 😀 Legacy data centers, once deemed obsolete, remain valuable due to their strategic interconnection points and low latency, making them relevant even in the age of cloud computing.
• 😀 AI and inference processing will push data centers closer to consumers and edge devices, emphasizing the need for localized infrastructure.
• 😀 The power demand for data centers is growing rapidly, with projections showing a significant supply-demand imbalance in power generation.
• 😀 Current global power grids, designed decades ago, are ill-suited to meet the rising energy demands of modern data centers.
• 😀 To meet the increasing energy demand, solutions like solar, wind, hydro, and micro-grids must be integrated with data centers.
• 😀 Nuclear power, while still years away from being a widespread solution, is seen as a potential contributor to the future energy mix for data centers.
• 😀 When investing in data centers, key factors include location, connectivity, and tenant quality (e.g., Amazon, Google, Microsoft), along with the lease structure and associated risks.

Q & A

What is the churn rate across the global data center portfolio mentioned in the script?

The churn rate across the global data center portfolio is less than 100 basis points, with a specific rate of 86 basis points.

How have rental rates changed in the data center industry?

Rental rates have increased by an average of 22%, contrary to earlier projections which expected rents to decrease.

Why is location considered critical in the data center industry?

Location is critical due to its role in providing low latency and high-speed connectivity. Key locations like Ashburn, Virginia, where 70% of internet traffic passes by, are especially important for future-proofing data center infrastructure.

What is the significance of 'stickiness' in the context of data center locations?

'Stickiness' refers to the tendency for clients to stay in specific data center locations over time, indicating the long-term value and demand for these sites. This was demonstrated by a lower-than-expected churn rate and higher-than-expected rental rates.

What challenges are associated with the power generation needed for the data center industry?

The primary challenge lies in the growing mismatch between supply and demand for power. Data centers are rapidly consuming more energy (currently 60 gigawatts globally), while existing power generation infrastructure is insufficient to meet the increased demand.

How much power do data centers consume compared to New York City?

Data centers globally consume about 60 gigawatts of power, which is equivalent to 11 times the energy consumption of New York City on a daily basis.

What is the anticipated power demand for data centers in the near future?

The power demand for data centers is expected to grow significantly, with projections indicating that data centers will require 240 gigawatts of power, and the industry will need to light up 22 gigawatts per year within the next five years.

What solutions are being explored to address the power generation challenges for data centers?

The industry is exploring various solutions, including solar, wind, hydro, and nuclear power. Additionally, micro-grids and grid-independent infrastructure are being developed to support the growing energy needs of data centers.

What role does nuclear power play in addressing the energy needs of data centers?

Nuclear power is seen as a promising solution, though it's still 6 to 8 years away from being viable. It is considered one of the few options capable of meeting the massive power demands of data centers in the future.

What factors do investors consider when evaluating data center investment opportunities?

Investors primarily focus on the location of the data centers, as latency and proximity to key infrastructure are critical. They also assess the credit quality of tenants (e.g., Amazon, Google, Microsoft) and the structure of the lease to evaluate the risks and returns associated with the investment.