The breakneck pace of growth in artificial intelligence is powering investment in the red-hot data infrastructure subsector
Data center dealmaking is ramping up across the globe as the rapid development of AI pushes up demand for supportive infrastructure. The US is expected to become the fastest-growing data center market globally, with demand growing from 25 GW in 2024 to more than 80 GW in 2030.
AI technologies require a vast amount of power to function, with a ChatGPT query using nearly ten times as much electricity to process as a Google search. This explosion in demand for power—not seen since World War II—leaves a sizable investment gap to fill. Providing additional data center capacity in the US is estimated to require an investment of more than US$500 billion in data center infrastructure.
M&A activity by value 2019 – 2024
Target location: USA Bidder location: Global Sectors: Computer software, Computer: Hardware and Computer: Semiconductors
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Effective July 1, 2023, the underlying Mergermarket data supporting the M&A Explorer was consolidated with Dealogic data to produce an even more complete picture of the M&A marketplace. M&A Explorer commentary published before July 1, 2023 may reference data that does not reflect this consolidation.
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The new US administration has already taken steps to support this growth, recently announcing a joint venture between OpenAI, Softbank and Oracle. The partnership, named Stargate, aims to invest US$500 billion in AI infrastructure over the next four years.
Data and deals
Dealmaking in the data infrastructure subsector is on the rise across the globe, with 81 deals valued at US$46.4 billion changing hands last year. No fewer that 30 of these deals were announced in the final quarter, almost doubling Q3’s number and indicating growing momentum within the market.
Data infrastructure M&A in the US is rising in line with this growth. A total of 26 deals valued at US$15.7 billion were announced in 2024—the highest annual volume since before 2018. This robust performance follows the same trajectory of overall technology dealmaking in the US, which saw value rise by 34 percent year on year, reaching US$309 billion in 2024.
The largest transaction of 2024 within the US data infrastructure space was DigitalBridge Group and Silver Lake’s US$9.2 billion equity investment in Vantage Data Centers. At closing, Vantage owned or controlled 25 data center sites across North America and EMEA, totaling more than 3 GW of expected capacity. This deal marks the growing trend of private equity firms teaming up with infrastructure funds to finance large transactions.
Another significant deal saw Swiss PE firm Partners Group invest US$1.9 billion in US data center operator Edgecore Digital Infrastructure, as it supports the roll-out of new data center sites across the US. The investment will also fund the development of a new data center site in Culpeper, Virginia.
Unprecedented demand for electricity is starting to generate deal activity. In March, cloud service provider Amazon Web Services (AWS), a subsidiary of Amazon, acquired Talen Energy’s 960 MW data center campus in Pennsylvania for US$650 million. Following the deal, Talen intends to supply fixed-price nuclear energy to AWS’s new data center as it is built. Nuclear and renewable energy, and models blending different types of sources, will be central in meeting the level of power required by data centers.
Trends and drivers
Looking ahead, the rapid rise of AI will be the major driver of data center M&A. Along with the digitalization of everyday life, the growth of AI has meant that demand for data processing and storage is scaling new heights.
Inorganic growth through acquisitions is a crucial tool for dealmakers looking to enter this space and meet the surge in demand. Technology firms, PE, real estate investors and utility providers are all vying for space in this fast-growing segment, which should result in a sharp uptick in M&A activity.
Data center dealmaking looks set to benefit from the election of President Donald Trump, who is eager to capitalize on the industry’s vast potential. To this end, Trump recently signed a US$20 billion deal with Dubai-based property developer DAMAC Properties to build data centers across the US.
The president’s recently announced Stargate joint venture holds huge potential for the industry, with up to US$500 billion in private sector AI infrastructure investment said to be on the table.
The PE sector looks set to be a major investor in the red-hot digital infrastructure sector going forward. Blackstone, Carlyle, KKR and Silver Lake are all currently active in the data center market. Since 2021, it is estimated that financial sponsors have collectively spent almost US$50 billion on data center buyouts in North American alone. And, while valuations within the industry are on the steep side, they are in line with what buyers are willing to pay.
Challenges on the horizon
Data centers need a vast amount of power to fuel them, and meeting this demand is placing increasing pressure on energy markets. In Santa Clara, for example, which is located in the heart of Silicon Valley, more than 50 data centers are estimated to consume 60 percent of the city’s electricity.
This demand could increase reliance on fossil fuels if alternatives are not pursued. Data center power consumption in the US is expected to drive around 3.3 billion cubic feet per day of new natural gas demand by 2030. A reliance on gas-fired generation would be at odds with technology companies’ decarbonization goals, creating a tension within the industry.
New solutions will need to be found if data centers are to remain sustainable over the long term. Nuclear, renewable energy and new models blending different types of energy sources all look set to play a major role in meeting future demand.
A growing need to safeguard data and protect sovereignty within borders could also become a challenge, especially in light of the rise of protectionist sentiment across the globe. This could impact foreign direct investment flows and cross-border M&A as governments look to cut dependence on overseas vendors and build up capabilities within their borders.
Outlook
While there are inherent challenges to be ironed out, the vast investment potential of the industry looks set to override any immediate concerns. The dealmaking outlook within the US data center market is extremely positive as the ongoing development of social media, cloud service and AI—particularly generative AI—push up demand for data infrastructure.
PE firms attracted to the industry’s long-term, stable investment prospects will continue to be active buyers in the market. They will, however, face competition from tech firms, utility providers and real estate investors looking to stake their claim in the high-growth industry. This healthy competition could result in a record level of deals changing hands over the coming year.
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