Demand for artificial intelligence (AI) and cloud computing services is accelerating, with data centers slated to be the engine of the smart technology revolution. Global tech giants, or hyperscalers, are rapidly expanding into new markets, pre-leasing capacity and spurring developers to raise substantial amounts of capital.
As private equity drives major investments and M&A booms, the industry faces growing public concerns and regulatory scrutiny. Our recent campaign highlights how these trends are shaping opportunities and credit risk in this rapidly evolving sector.
What are the key risks for the data center industry?
Despite powerful demand tailwinds, the data center industry faces a tightening cluster of risks. Rapid capacity expansion raises the prospect of overbuilding if AI adoption curves flatten or shift direction, while fast-moving advances in chip design, cooling, and architecture increase the risk of technological obsolescence.
At the same time, surging power and water requirements are drawing regulatory scrutiny and straining local infrastructure, particularly in energy-constrained markets. Rising capital intensity, longer development timelines, and greater reliance on structured finance add further pressure to balance sheets, leaving developers, landlords, and investors increasingly exposed to execution, renewal, and refinancing risks as the sector scales.
AI data centers growth: Resources to help balance credit and technology risks
Dive deeper into the credit implications of overbuilding and technology risks as hyperscalers drive the rapid expansion of data centers to meet soaring demand. From global trends to U.S. power sector impacts, our experts provide key insights to help you navigate this rapidly evolving market with confidence.
Growing scale of new projects highlights overbuild, tech risks amid booming demand
Surging growth in hyperscale data center capacity will eventually level off, but identifying that inflection point has become increasingly difficult as AI data center campuses emerge as another key growth driver. Data center developers and large tech companies, or hyperscalers, continue to invest heavily in large data center projects. But the computing needs they will serve in the future remain uncertain given the constant flow of innovative technological breakthroughs, posing long-term credit risks to developers, landlords and investors.
AI innovations point to strong spending on IT infrastructure despite macro turmoil
Breakthrough innovations in artificial intelligence (AI) and its rapid adoption will drive continued exponential growth in demand for global data center capacity in the months ahead. The leading cloud service providers, or "hyperscalers," are spending billions on data centers and IT infrastructure to increase supply of AI computing capacity for their own and clients' needs, but demand continues to exceed the supply. At the same time, US tariff hikes have weakened the global economic outlook and increased uncertainty about future appetite for data center investments.
Behind the Bonds – How data centers are defying growth risks
Increasing use of artificial intelligence (AI) is spurring massive investment in data centers, which could top $2 trillion in the next four years. But huge energy requirements and uncertainties over future computing needs may pose long-term credit risks to developers, landlords and investors. Learn more by tuning into this episode of our Moody’s Talks – Behind the Bonds podcast.
Regulated utilities move to limit risk amid still-surging data center power demand
Data center electricity consumption remains on a steep, upward trajectory , but there is still significant uncertainty about the pace at which this demand will grow over the long term. Regulated electric utilities in the US are taking measures to protect themselves from overbuild risk and should have time to adapt their investment strategies and power infrastructure to meet actual data center demand.
REITs manage evolving risks as data center development soars
Data center landlords that benefited from rising demand for cloud services, high performance computing and artificial intelligence (AI) over the past decade are now grappling with the knock-on effects of rapid growth: a landscape with rising supply and technological advancements so swift that they threaten obsolescence of existing projects and properties. This trend has accelerated as enterprises and hyperscalers seek new and upgraded facilities to meet expanding needs. However, the rated REITs' measured approach to growth and their diversified portfolios, which include assets in resource-constrained locations, will help in managing risks associated with rising vacancies and downward pressure on rents, if they occur.
Overbuilding, technology pose renewal and capex risks, particularly for turnkey assets
As data center capacity ramps up considerably in coming years to meet strong demand for cloud computing, AI and enterprise workloads, the performance of data center securitizations will be at risk if tenant demand for capacity falters. Also, to the extent that landlords increase capital expenditures (capex) to avoid obsolescence as their data centers age, cash flow may eventually narrow for commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS). Structured finance has become a major financing tool for data centers, with more than $9 billion of issuance through the end of April 2025 ($4.6 billion from CMBS and $4.7 billion from ABS transactions).
Interested in learning more?
Visit the Data Centers topic page to view all in-depth resources from our recently concluded Data Centers campaign.