AI investment mania and the second wave of semiconductor plants.

By Wolf Richter for WOLF STREET.

Of the trillions of dollars to be sunk into the AI-related capital expenditure mania – nearly $3 trillion through 2028, per a research report by PitchBook today – only a small portion is going to the actual construction costs of data centers, which is what we track here, but they nevertheless show the trend of the AI spending mania.

The vast majority of data-center costs is going to AI servers and related equipment in those data centers, and to equipment to supply the servers with power, and to the equipment and infrastructure to connect the data centers to the internet, none of which are included in construction costs here.

Construction spending on data centers soared by 34% year-over-year in March to a seasonally adjusted annual rate (SAAR) of $50 billion, up by 437% since the beginning of 2021 and up by 688% since the beginning of 2018, according to data from the Census Bureau today. It takes years to plan, permit, and build data centers – now amid growing local opposition – and the spending today was originally planned some time ago.

This boom in data-center construction activity has triggered various supply constraints and bottlenecks, ranging from labor, such as electricians, to electrical equipment, including on-site power-generation equipment when grid power is insufficient. No one was prepared for this kind of explosion of concentrated investment.

Office construction spending fell by 9% year-over-year in March, to a seasonally adjusted annual rate of $46 billion, the lowest since 2015, amid the severe problems in the office sector of commercial real estate.

Spending on data center construction (blue line) exceeded spending on office construction (red line) for the first time ever in January. Boom and bust:

Spending on Power Plants & Distribution rose by 5.5% year-over-year to a seasonally adjusted annual rate of $125 billion, up by 41% since the beginning of 2021. This includes construction spending on power plants and transmission infrastructure.

It takes years to plan and build a power plant, including regulatory approvals. That process lags far behind what data centers need. In addition, utilities and power generators are worried about an untimely end of the AI investment mania that might leave them with newly-built stranded assets when the investment bubble implodes, and they’ve been proceeding with some care.

Construction spending on factories.

Semiconductor plants are included in the category of factories for computers, electronic & electrical equipment factories. At the peak, this category accounted for roughly half of total factory construction spending.

Construction spending on those factories dropped to an annual rate of $70 billion in March, down sharply from the peak in 2024, but still up by a huge 768% from early 2021.

And there is a second wave of semiconductor plants getting lined up, including SpaceX’s Terafab facility in Grimes County, Texas, with an estimated capital investment of $55 billion for the first phase, and total capital investment, “if additional phases are constructed,” of $119 billion, according to a Grime County public hearing notice.

The construction phase of some of the plants that were started a few years ago is now finished, and the equipment is getting installed, and in some, production is getting ramped up. But these data here are just the construction costs of the buildings and do not include the cost of the production equipment in the building that dwarf the costs of the building.

Construction spending on factories for chemical products, the second-largest category of factory construction, jumped by 9.9% year-over-year to a seasonally adjusted annual rate of $46 billion in March, up by 57% from the beginning of 2021.

Overall spending on factory construction in March dropped to an annual rate of $189 billion, that was still up by 154% from the beginning of 2021, still a massive increase in spending on factories compared to a few years ago.

All these factories will be highly automated plants with relatively little low-skilled manual labor. No one is building a sweatshop factory in the US as labor is too expensive, and there won’t be a surge of low-skilled manual labor coming with these factories. But industrial robots cost the same anywhere in the world; they’re the great equalizer.

How much of this growth is inflation? Construction cost inflation for nonresidential buildings has started to accelerate over the past three months and in March rose by 3.3% year-over-year, according to the Producer Price Index for Construction of Nonresidential Buildings.

The big spike of construction cost inflation occurred in 2020 through 2022 (+36% in two years). In 2023 and 2024, costs remained relatively flat, with inflation near 0% over those two years. Then in the second half of 2025, construction costs began rising again.

By comparison: Year-over-year, the PPI for construction costs is up by 3.3%, while spending on data-center construction is up by 34%; since January 2021, the PPI is up by 36%, while spending on data-center construction by 437%.

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