As artificial intelligence (AI) accelerates the demand for data centers, the United States risks falling behind in the global AI race unless it swiftly addresses key constraints limiting growth.
According to Bloomberg, spending on AI is expected to surge at a compound annual rate of 37% through 2032, driven by the widespread shift to cloud services and generative AI applications. However, the expansion is colliding with mounting supply chain disruptions and infrastructure shortfalls, posing significant challenges to U.S. dominance in AI development.
Hyperscalers Sound the Alarm
Major U.S. data center developers—commonly known as hyperscalers—have repeatedly flagged supply chain bottlenecks as obstacles to growth in their quarterly earnings calls. The U.S. currently hosts 45% of the world’s data centers, but much of the essential hardware, including chips, servers, and networking equipment, is imported.
The sector relies on a complex ecosystem of components such as semiconductors, storage systems, cooling solutions, and power infrastructure. Four key limitations are constraining growth: restricted chip supply, tariffs, land availability, and access to reliable electricity.
As other nations ramp up reshoring and domestic investments in AI infrastructure, the U.S. must act decisively to retain its technological leadership. The ability to scale flexibly and resolve supply-side issues will be crucial in the years ahead.
Chip Supply and Tariff Risks Loom Large
Semiconductor shortages remain a major choke point. Most advanced chips are manufactured in Asia, with Taiwan being a key hub. The 2022 CHIPS and Science Act earmarked $280 billion to boost domestic chip manufacturing, but new plants funded through the program may not be operational until 2028 or later.
While the U.S. leads global efforts to onshore semiconductor production, it’s not alone. The European Union, for instance, announced its €43 billion ($47 billion) European Chips Act in 2023.
Trade tensions also threaten to upend supply chains. The Trump administration has indicated potential rollbacks of the CHIPS Act and proposed a 25% tariff on semiconductors from Taiwan—a move that could severely impact the U.S. tech industry, given Taiwan’s dominance in chip fabrication.
China remains a major supplier of critical hardware, while Canada provides vital materials such as steel and aluminum for data center construction. Any disruptions to these trade flows—whether through tariffs or geopolitical friction—could escalate costs and incentivize companies to invest in data centers abroad.
The Energy Conundrum
Power availability is quickly emerging as a limiting factor for data center growth.
Research by TD Cowen projects that U.S. data centers will consume 6.6% of the nation’s electricity by 2028. Already, several major data center hubs are nearing capacity. Northern Virginia could run out of reliable power by 2027, with Ohio following in 2028, and Silicon Valley by 2034. Dallas, Texas, has reportedly already exceeded its supply.
The U.S. Department of Energy reported that data centers consumed 176 terawatt-hours in 2023, accounting for 4.2% of total U.S. electricity use. For context, that’s more than half the annual energy consumption of Mexico, a nation of 130 million people.
While overall U.S. electricity demand grew just 0.1% annually over the past 15 years, it is now expected to rise by 2% to 3% per year—particularly in regions dense with data center activity. The grid, designed for a slower pace of growth, is under strain.
Powering the Future: Behind-the-Meter Solutions
To address power constraints, hyperscalers are increasingly pursuing “behind-the-meter” energy strategies—building their own power plants and renewable sources to supply electricity directly. This allows for more predictable scaling and insulation from grid instability.
However, such efforts face practical limitations. Nuclear power, favored for its reliability and carbon neutrality, often takes over a decade to build and frequently encounters public resistance. Renewable options like wind and solar, when paired with battery storage, can come online in 12 to 18 months. Natural gas plants, meanwhile, typically require four to five years for deployment.
Cooling represents another major energy drain. According to McKinsey, 40% of data center energy consumption in 2023 was dedicated to cooling systems. Overheating is a critical risk, with potential for catastrophic outages. A 2023 incident in Singapore, for instance, saw 2.5 million banking transactions fail when a data center overheated.
Water-cooled systems are growing in popularity, offering efficiency gains but raising concerns about water usage and strain on municipal systems.
Shifting Geographies and Regulations
Historically, U.S. data centers have been concentrated in regions with robust internet exchanges and low risk of natural disasters, such as Northern Virginia, Oregon, Phoenix, and Dallas/Fort Worth. But saturation in these markets is prompting developers to scout new territory.
Regulators are taking note. Some states are introducing legislation to ensure that data centers shoulder a fair share of power costs and adhere to renewable energy benchmarks.
Looking Ahead: Strategic Imperatives
The anticipated AI-driven boom in data center demand presents both opportunities and challenges for the U.S. economy. To capitalize on this growth, stakeholders—from infrastructure developers to policymakers—must move quickly and strategically.
Companies can prepare by assessing scalability, diversifying suppliers, tapping into government incentive programs, and preparing for a dynamic interest rate environment that could affect capital-intensive projects.
Agility and self-sufficiency will be the watchwords in the years ahead. With AI evolving rapidly and reshaping every corner of the data infrastructure landscape, only those able to navigate supply, power, and policy hurdles will emerge as long-term winners.
