Outlook for Data Centers in the Second Half of 2025: A Surge Fueled by AI, Sustainability, and Emerging Markets
The data center industry is poised for transformative growth in the second half of 2025, driven by the relentless expansion of artificial intelligence (AI), increasing demand for cloud computing, and a global push for sustainable infrastructure. As digital transformation accelerates across industries, data centers remain the backbone of the modern economy, supporting everything from generative AI models to edge computing for autonomous vehicles. However, the sector faces significant challenges, including power constraints, regulatory scrutiny, and rising operational costs. This article explores the key trends, opportunities, and hurdles shaping the data center landscape for the latter half of 2025, drawing on recent industry insights and projections.
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AI-Driven Demand Continues to Reshape the Industry
The meteoric rise of AI is the dominant force propelling data center growth. In 2025, AI applications are expanding across industries, from healthcare and finance to manufacturing and entertainment, driving unprecedented demand for compute-intensive infrastructure. According to JLL’s 2025 Global Data Center Outlook, global data center construction is at record levels, with an estimated 10 gigawatts (GW) expected to break ground and 7 GW projected to reach completion in 2025, equating to roughly $170 billion in asset value. Much of this capacity is preleased to hyperscale giants like Microsoft, Google, AWS, Meta, and Oracle, reflecting the sector’s low vacancy rates, which CBRE reports at a record 2.8%.
The rapid advancement of semiconductor technology, particularly GPUs, is at the core of this AI revolution. Modern GPUs can perform computations in seconds that once took hours, enabling AI models to train on massive datasets. However, this comes with a catch: GPU rack densities is projected to increase from 40–140 kW to 250 kW per rack, generating significant heat and necessitating advanced cooling solutions like immersion liquid cooling, which is becoming the standard for new facilities. Retrofitting existing data centers with liquid cooling systems is also gaining traction, offering operators a chance to boost asset value while meeting AI-driven power demands.
Posts on X highlight the scale of this AI-driven boom, with McKinsey forecasting global data center capacity demand potentially quadrupling to 219 GW by 2030, a 27% compound annual growth rate (CAGR). Microsoft alone plans to triple its data center capacity by June 2025, underscoring the urgency to scale infrastructure.
Sustainability and Energy Challenges Take Center Stage
As data centers consume an estimated 2% of global electricity in 2025, their environmental impact is under intense scrutiny. In regions like the U.S., China, and the EU, data centers account for up to 4% of electricity use, with localized impacts as high as 10% in certain U.S. states and over 20% in Ireland. The second half of 2025 will see operators prioritizing energy efficiency and renewable energy to meet regulatory pressures and investor expectations.
Innovations in cooling, such as two-phase direct-to-chip cooling, are gaining momentum for their ability to manage heat from high-density AI workloads while reducing energy consumption. Hyperscalers like AWS and Microsoft are securing multi-gigawatt renewable energy agreements for wind and solar to power their facilities, while some explore nuclear options, including small modular reactors (SMRs), to address grid constraints. JLL predicts a doubling of SMR announcements in 2025, signaling nuclear power’s emergence as a viable long-term solution.
However, power availability remains a critical bottleneck. JLL notes that power demands from existing and planned U.S. data centers exceed utility supplies by 50%, pushing developers to secondary markets with better power access, such as Columbus, Ohio, and San Antonio, Texas. Natural gas is also emerging as a “bridge fuel,” with companies like Chevron and ExxonMobil developing gas-fired power plants to support data centers, though this risks delaying the transition to renewables.
Regulatory frameworks are tightening, particularly in Europe, where the European Commission’s 2024 sustainability regulations require data centers with over 500 kW of IT power demand to report energy and water usage by May 2025. These measures aim to enhance transparency and promote energy reuse, such as channeling waste heat into municipal networks.
Emerging Markets and Edge Computing Gain Traction
While established hubs like Northern Virginia and London remain dominant, power and land scarcity are driving growth in secondary and emerging markets. In the U.S., cities like Phoenix, Atlanta, and Dallas are attracting hyperscale and colocation investments due to lower costs and better power availability. Globally, regions like Brazil, India, and Southeast Asia are emerging as data center hotspots. Brazil’s stable political climate and renewable energy resources have spurred investments from companies like Ascenty and Equinix, while India’s market is projected to reach $8 billion by 2026, fueled by data localization policies.
Edge computing is another growth driver, as demand for real-time data processing surges for applications like autonomous vehicles and smart cities. Edge data centers, which are smaller and geographically distributed, are challenging operators to balance performance, security, and sustainability in remote locations. AlphaSense notes that edge facilities require advanced security measures, as they often lack the fortified environments of traditional data centers.
Investment and Financing Trends
Investor appetite for data centers remains robust, driven by low supply, high demand, and AI’s growth potential. JLL forecasts another record year for data center development financing in 2025, with deals typically arranged at 65–80% loan-to-cost for development and 65–75% loan-to-value for permanent financing. Private equity is playing a significant role, with mega-partnerships like BlackRock, Microsoft, and MGX’s $100 billion AI infrastructure fund and KKR’s $50 billion partnership with Energy Capital Partners.
However, global data center trading volume is expected to see only a modest increase due to a bid-ask spread caused by rising interest rates and differing relet assumptions between buyers and sellers. Joint ventures are likely to rise, particularly in developing countries, as firms partner with local groups to navigate regulatory and political landscapes.
Challenges and Risks
Despite the optimistic outlook, the second half of 2025 will bring challenges. Power constraints and transmission bottlenecks in major markets like Northern Virginia and Tokyo could delay projects. Supply chain instabilities, including component shortages for liquid cooling systems, may hinder deployments, with potential tariffs under the incoming Trump administration adding further complexity.
Regulatory risks are also rising. Public concerns about data centers’ electricity consumption are prompting greater scrutiny, and legal restrictions on AI model training or social media platforms could dampen demand in some markets. Additionally, the industry faces a labor shortage, with 60% of companies struggling to hire and retain qualified staff. Operators are exploring reskilling programs and recruiting from sectors like the military to address this gap.
A Final Word: A Dynamic and Resilient Sector
The data center industry in the second half of 2025 is set for explosive growth, underpinned by AI’s insatiable demand for compute power and the global shift toward digital infrastructure. While challenges like power constraints, regulatory pressures, and labor shortages loom large, the sector’s resilience is evident in its rapid adoption of sustainable technologies, expansion into emerging markets, and robust investment activity. Operators that balance performance, efficiency, and environmental responsibility will lead the charge in defining the next generation of digital infrastructure.
For stakeholders, the key to success lies in strategic site selection, innovative cooling and power solutions, and partnerships that navigate local complexities. As J.P. Morgan notes, the data center boom could add 10–20 basis points to U.S. GDP growth in 2025–2026, signaling its broader economic impact. With the right strategies, the data center industry is well-positioned to meet the demands of an increasingly AI-driven world while addressing the sustainability imperative.
