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New Data-Center Property Investment Signals AI Boom

One of the world’s largest data center providers is receiving a significant $6.4 billion equity infusion, marking yet another indication of the thriving property sector closely tied to the ascendance of artificial intelligence.

Vantage Data Centers is poised to leverage the capital injection from digital infrastructure investor DigitalBridge Group and Silver Lake, a technology investment firm, to expand its global footprint by adding over 3 gigawatts of capacity. This expansion, equivalent to powering more than 2.5 million homes, underscores the escalating demand for data center services in tandem with the burgeoning AI landscape.

Already boasting 32 data center campuses across five continents, Vantage’s strategic growth initiative is spurred by the surging AI demands from tech giants like Microsoft, Google, Oracle, and Amazon Web Services. The projected investment of approximately $30 billion, inclusive of debt, reflects the company’s commitment to meeting the evolving needs of its clientele.

Sureel Choksi, Vantage’s chief executive, remarked, “Arguably [AI] has been the fastest adopted business technology in history,” underscoring the intense competition among leading tech companies. The $6.4 billion equity raise elevates Vantage’s global valuation to over $15 billion, signaling robust confidence in the data center industry’s future prospects.

The data center sector, serving as the backbone of the internet, witnessed a surge in activity as millions of individuals and businesses embraced AI tools. Notably, AI computing, exemplified by OpenAI’s ChatGPT, imposes substantial demands on data center power and cooling infrastructure compared to traditional technologies.

Prior to the AI boom, large deals in the data center industry typically revolved around single locations offering 20 to 50 megawatts in capacity. However, Vantage has observed a paradigm shift in recent times, with deals involving tenants seeking 100 to 500 megawatts dedicated to AI workloads, a trend indicative of the industry’s evolution.

In North America alone, companies leased 2.4 gigawatts of data center capacity in the first three quarters of 2023, surpassing previous records. This heightened demand has translated into double-digit rent increases, signaling a buoyant market outlook for data center operators.

While other commercial property sectors grapple with declining valuations, the data center segment continues to thrive, buoyed by robust demand and resilient growth. Investment heavyweights like Blackstone and PGIM Real Estate have seized opportunities in the data center boom, with shares of data center-focused real estate investment trusts outperforming the industry average.

Both DigitalBridge and Silver Lake have deep-rooted ties with Vantage, with Boca Raton-based DigitalBridge serving as a lead investor in the company through its digital infrastructure funds. Silver Lake, with a keen eye on meeting the burgeoning data center demand from cloud-computing businesses, founded Vantage in 2010.

Despite the challenges posed by potential electricity shortages and regulatory concerns surrounding AI, Vantage remains undeterred in its expansion plans. The company, armed with ample land and partnerships with local utilities, remains poised to navigate future obstacles while capitalizing on the relentless growth trajectory of the data center industry.

“Irrespective of all the concerns being raised, I think the genie is out of the bottle on AI,” remarked Wittlinger, reflecting the unwavering confidence in the transformative potential of artificial intelligence.

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