Calls to slow the pace of artificial intelligence development have pressured AI-related stocks in recent days, raising questions about potential effects across industries connected to the technology. The real estate sector, particularly data center operators, is among those watching developments closely.
While cloud computing, enterprise technology and internet services all require data center capacity, artificial intelligence has quickly become the biggest driver of new demand. According to McKinsey, AI could represent around 70% of global data center capacity demand by 2030, requiring nearly $7 trillion in total investment.
Data Centers Remain Central to AI Growth
The real estate component of that investment could reach approximately $3 trillion over the next five years, according to JLL, which provides global data center real estate services.
Shares of major data center real estate investment trusts (REITs), including Digital Realty and Equinix, declined after warnings from AI industry leaders about the pace of future AI development.
However, Digital Realty CEO Andrew Power said a potential slowdown in AI advancement does not mean a halt in demand for the infrastructure supporting the technology.
“There’s tremendous digital transformation happening that is not connected to AI,” Power said, pointing to continued growth in cloud computing and other digital services.
Cloud Demand Continues Beyond Artificial Intelligence
Power said major technology companies have faced difficult decisions between expanding commercial cloud services and allocating computing capacity toward AI development.
He added that demand varies significantly by location, with markets such as Northern Virginia, Dallas, Chicago, Singapore, Tokyo, Frankfurt and Amsterdam experiencing strong competition for available data center space.
“Our markets’ demand has been outpacing supply now for several years,” Power said, noting that certain workloads require specific locations because of factors such as connectivity, regulations and data sovereignty.
AI Adoption Could Drive Future Capacity Needs
Industry analysts said a slowdown in developing new AI models would not necessarily reduce the physical infrastructure required for AI, particularly because the biggest future growth area is expected to come from AI adoption rather than model training.
Andrew Batson, global head of data center research and strategy at JLL, said the next major wave of demand will come from businesses and consumers integrating AI tools into everyday workflows.
“Only 1 in 4 Americans use AI daily, so even if models are slow to be released, there is significant runway for adoption to grow and data center demand to increase,” Batson said.
Investors Continue Supporting Data Center Expansion
Batson pointed to continued investment from major financial firms, including Blackstone, BlackRock and KKR, as evidence that institutional investors remain confident in the long-term data center market.
Digital Realty said its development pipeline has expanded significantly, reaching $20 billion in projects under construction compared with $10 billion at the end of 2023.
Digital Realty Prepares for Market Volatility
Power said fluctuations in data center REIT stock prices would not change the company’s long-term strategy, emphasizing that Digital Realty has adjusted its funding model to support continued expansion.
The company has raised private capital, created joint ventures and strengthened its balance sheet to maintain flexibility as demand patterns evolve.
Power acknowledged that markets could face uncertainty but said the company is positioned to manage potential challenges while continuing to invest in digital infrastructure.
