Boom, bust, and the adults in the room.

By Wolf Richter for WOLF STREET.

Investments in the construction of data centers in the US has exploded. But this construction spending on data centers does not include the amounts spent on AI-specialized semiconductors, memory chips, servers, networking equipment, etc., which has reached astronomical levels. The four biggest cash-richest companies – Microsoft, Alphabet, Meta, and Apple – project capital expenditures of over $210 billion in their current fiscal years, just those four. Compared to that, construction costs are mundane. But they show the trend.

Construction spending on data centers soared by 29% year-over-year to $3.5 billion in June, not seasonally adjusted, up by 366% since the beginning of 2022, and up by 430% in the seven years since mid-2018. The $1-billion-a-month mark was surpassed for the first time in May 2022.

Data center construction had already grown at a red-hot pace before 2022, but 2022 triggered panic mode when Microsoft, Alphabet, Meta, and Apple, plus lots of lesser companies such as Tesla, plus data-center specialists such as Digital Realty, Equinix, and CoreSite, a subsidiary of American Tower, plus PE firms, VC firms, and hedge funds, plus everyone and their dog began throwing mindboggling amounts of cash at the physical infrastructure for AI, including the buildings to house the servers.

The Census Bureau, which tracks construction spending of all kinds, considers data-center construction spending one of the main segments of office construction spending.

The rest of office construction spending (total office minus data centers, blue in the chart below) has plunged since 2022 when the commercial real estate sector of office began to spiral into a depression.

In dollar terms, the rest of office construction spending has plunged nearly as much as data center construction spending has soared. As a result, total office construction spending, including data centers, has increased by only 17% since 2022 and by 30% since mid-2018.

Construction-cost increases: The PPI for Construction of Nonresidential Buildings jumped by 37% in two years from the beginning of 2021 through the end of 2022.

But construction cost inflation has stabilized in 2023 (actually negative inflation), 2024, and so far in 2025, and neither the data center construction boom nor the plunge in office construction over those years was significantly impacted by inflation.

Where’s the juice going to come from? Data centers require lots of power, and utilities or the data center providers themselves have to invest to build new capacity to generate this power and invest in the transmission infrastructure to get the power to the data centers. But it’s a slow complex process and takes many years.

And utilities want to make sure the infrastructure they plow billions of dollars into will not become a stranded asset when the AI bubble implodes, and so they’re proceeding with the care of the adults in the room.

Monthly construction spending on electric power installations, including power plants and transmission infrastructure, has run at a pace of $9 billion to $10 billion a month over the past two years ($9.6 billion in June), after two big waves of acceleration, totaling 67% since mid-2018. Since the beginning of 2021, the monthly construction pace has risen by 33%, essentially just tracking construction cost increases.

There are now numerous powerplant projects being planned and argued over, but they won’t show up in construction spending until on-site construction actually starts.

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