Power shortages, grid stress may prevent AI data centre bubble despite global investment surge: Report

India's rapidly expanding AI-driven data centre sector is unlikely to face an infrastructure bubble despite aggressive investment activity, as severe power shortages, land constraints and tightening regulations are naturally restricting oversupply, according to a report by global real estate services firm Cushman & Wakefield.

India's rapidly expanding AI-driven data centre sector is unlikely to face an infrastructure bubble despite aggressive investment activity, as severe power shortages, land constraints and tightening regulations are naturally restricting oversupply, according to a report by global real estate services firm Cushman & Wakefield. The report said concerns around a possible "AI data centre bubble" are growing globally amid massive investments by hyperscalers and AI companies, but added that current market conditions do not point toward reckless overbuilding.

"It is important to distinguish between an AI data center infrastructure bubble and a broader AI investment bubble," the report said. The report clarified that while AI-related company valuations and stock market investments may face bubble concerns, physical data centre infrastructure continues to be supported by strong real demand and limited supply.

"From an infrastructure perspective, a bubble -- or even an overbuilding scenario -- is unlikely under current market dynamics," it said. According to the report, demand for data capacity continues to exceed available supply globally, with extremely low vacancy levels and strong pre-leasing activity across operational and upcoming facilities.

"Demand for data capacity continues to exceed available supply on the market, as evidenced by extremely low vacancy rates in operational facilities and strong preleasing activity in the development pipeline," the report said. The report noted that India is increasingly becoming part of this global AI infrastructure expansion cycle, with hyperscalers scaling up investments across multiple cities.

It highlighted Google's planned "gigawatt-scale hub in Vizag, India" as an example of large-scale AI infrastructure expansion outside traditional global hubs. However, the report said the biggest challenge for India and other fast-growing markets will be securing sufficient electricity and infrastructure support for future AI demand.

"Grid power availability, or the ability to colocate private generation in the absence of available grid capacity, remains the chief concern in the data center industry, as power is necessary for compute," the report said. The report added that widespread power constraints across global markets are already preventing uncontrolled expansion and making speculative projects difficult.

"Widespread power constraints, which have been present across the industry for more than 24 months, have also prevented the ability to overbuild," it said. The report further said governments across several countries are tightening regulations to ensure data centre growth does not strain existing infrastructure and utilities.

"Governments worldwide are rewriting the rules to ensure that new data center development does not overburden existing resources, particularly the power grid," it said. According to the report, several global markets, including Amsterdam and Dublin, have already witnessed stricter regulations, power-related bottlenecks and growing public opposition to large-scale data centre expansion.

The report noted that these pressures are increasingly pushing developers toward secondary and tertiary markets with better access to land and power resources. "These dynamics continue to drive site selection toward rural areas, particularly in secondary and tertiary markets," it said.

The report also said investor focus in the industry is gradually shifting from "build at any cost" expansion to profitability and execution. "Investor sentiment has largely shifted from a 'build at any cost' mindset to one focused on proving returns," it said.

At the same time, the report cautioned that while an infrastructure bubble appears unlikely currently, risks remain if future revenue growth slows sharply. "As this development cycle progresses, there is a non-zero chance that revenue growth plateaus or dips sooner than expected, which could trigger investor concern and temporary investment pullbacks," the report said. (ANI)