“Data center supply — specifically the rate at which incremental supply is built — has been constrained over the past 18 months,” Schneider says. These constraints have arisen from the inability of utilities to expand transmission capacity because of permitting delays, supply chain bottlenecks, and infrastructure that is both costly and time-intensive to upgrade.
Power demand from data centers will require additional utility investment
As data centers contribute to a growing need for power, the electric grid will require significant investment. Goldman Sachs Research estimates that about $720 billion of grid spending through 2030 may be needed. “These transmission projects can take several years to permit, and then several more to build, creating another potential bottleneck for data center growth if the regions are not proactive about this given the lead time,” Schneider says.
In Europe too, a data center-led surge in power demand is under way, after 15 years of decline in the power sector. Having surveyed utilities across the continent, Goldman Sachs Research found that the number of connection requests received by power distribution operators (a leading indicator of future demand) has risen exponentially over the past couple of years, mostly driven by data centers.
“We estimate a potential 10-15% boost to Europe’s power demand, over the coming 10-15 years,” Alberto Gandolfi, head of the pan-European utilities team for Goldman Sachs Research, writes in a separate report. Goldman Sachs Research estimates a data center pipeline for Europe amounting to about 170 GW, equivalent to about one-third of the region’s power consumption.
“It is unclear at this point whether DeepSeek would have a positive or negative impact on the ‘data center bull case thesis’ for Europe,” Gandolfi writes in another note. “Yet we stress that around 35-40% of a hyperscaler’s energy consumption is from cooling, which would be similar across technologies.”
The investing landscape in the data center market
Goldman Sachs Research foresees an increasing breadth of investment opportunities as the data center market expands:
- Hyperscalers: Enterprises are pushing to integrate AI and machine learning tools into their tech stacks to drive core businesses, which will benefit hyperscalers. “As we progress further up from the ‘infrastructure layer’ into the ‘AI model/platform layer’ and, ultimately, the ‘application layer,’ the hyperscalers’ ability to generate a return on this compounded level of capex has becoming increasingly top of mind for investors,” Schneider writes.
- Asset managers: Given a longer time horizon to fully develop data center infrastructure, companies that can raise long-dated pools of private capital will have a potential advantage relative to investors with shorter time horizons.
- Utilities: The expansion of the power grid is among the chief future possible constraints to data center supply.
- Data center operators: Major data center operators with significant asset footprints that serve the likes of hyperscale cloud companies as well as large enterprise customers will be well-positioned to meet the expected surge in global demand.
This article is being provided for educational purposes only. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.
Source: goldmansachs.com
