Our research focus
A core question we seek to answer is: Which operators are best prepared for necessary data center development and long-term cost performance as they compete to lead this new wave of AI? We also seek to assess the risk of delays or pushback on data center development, owing to resource requirements and each company’s ability to manage these risks. We have found that a few factors are critical to both questions and help us determine whether a data center operator is poised to become a leader or a laggard:
- Strong siting decisions to manage physical limitations on data center build-outs, stemming from water and energy infrastructure and/or supply challenges
- Efforts to build local relationships that mitigate possible policy restrictions and/or pushback from governments, communities, and utilities
- Sophisticated power purchasing and investments in long-term energy solutions to ensure continued commitment to net-zero climate commitments at reasonable costs
- Proactive focus on efficiencies in facilities and compute design that strike the right balance between water, energy, and cost management
Siting decisions that minimize physical limitations
Hyperscalers have a fair amount of flexibility when it comes to facility siting. They can expand into new regions to access favorable electric utility relationships and plentiful water resources. Our research finds that certain operators are more adept at siting, establishing footprints in regions with ample water supplies and electricity development potential. These first-mover advantages may ensure that companies can secure building permits and other approvals faster than their competitors and may more easily avoid future operational disruptions.
Strengthening local relationships
As AI is increasingly viewed as a “strategic sector,” with both national security importance and local employment implications, hyperscalers can make a stronger case for their possible contributions to local economic and social development. Here again, we have found certain companies to be more capable than others in developing these relationships and prioritizing the benefits to immediate jurisdictions, some extending to aid development of wider tech hubs and support job training in AI. These efforts may help accelerate speed to market and minimize operational scrutiny from local or national regulators.
Strategically managing power purchasing and clean-energy investments
In the same vein, arrangements with local utilities, most notably clean-energy power purchase agreements (PPAs), can be designed to create “win-win” economic outcomes for local constituents. Some operators have navigated this process well, combining utility concessions to support grid reliability and ensure they pay their fair share of rates. A few are taking an even longer-range view, securing clean-power supply through large-scale development deals in which data center operators assure the utilities of their long-term energy demand. Finally, some operators have sought to support the development of nascent clean-energy technologies that also help utilities with the long-term challenges of grid reliability, including long-duration energy storage, microgrids and other transmission solutions, and clean forms of baseload power. All of these efforts are critical to reaching clean-energy goals in partnership with utilities as power consumption from AI use increases.
Increasing energy and water efficiency
Efficiency in all forms is, and will continue to be, a cost imperative for data centers. Companies that build energy and water efficiencies into facility design and computing capacity may maintain cost-savings advantages, minimize the risk of interruption, and protect their right to operate. Water rights in particular are under increasing scrutiny at locations with high water stress or with data center operators that are dominant users. We believe hyperscalers and other operators with strong water programs are better positioned to secure and maintain their right to operate. Likewise, data center operators that prioritize supplier relationships to maximize energy efficiency — including developing custom chips to help drive longer-term efficiency gains and help keep costs under control — may be better able to manage costs, adhere to net-zero and other climate goals, and manage energy requirements. All of these efforts accrue options for siting, local relationship building, and the purchase of clean power.