Public backlash, costs of power and even cooler climates are among the reasons Big Tech is looking abroad for opportunities to build data centers
On Wednesday, Google said it is investing EUR13 billion in Finland over the next two years, which will go toward digital infrastructure - including building data centers.
Building data centers in the U.S. is becoming a nightmare for artificial-intelligence hyperscalers.
Between outrage from voters fearing higher energy and water bills, representatives fearing blame and obstacles from federal regulators, the challenges are mounting for Big Tech companies looking to meet the demand for AI.
And most recently, states have been scrapping tax incentives that aim to lure data-center projects to their states, which would cost the builders billions of dollars, the Wall Street Journal reported.
These are just a few of the host of reasons hyperscalers are looking abroad for opportunities to build, according to analysts.
"The economics for building data centers in the U.S. have gotten worse as tax incentives go away and are replaced by local municipalities demanding concessions from data center operators," D.A. Davidson analyst Gil Luria told MarketWatch.
On top of that, U.S. data-center projects have been experiencing delays and operators are "diversifying away from the U.S. to make sure they have enough compute capacity to serve the surging demand for AI," he explained. Compute capacity refers to what's needed to run AI models.
Decisions by states to remove incentives could be something Alphabet's (GOOGL) (GOOG) Google took into account when choosing to invest 13 billion euros, or roughly $15 billion, in Finland to build data centers, Luria said.
On Wednesday, Google announced that the company is investing that sum over the next two years, to build "digital infrastructure," which includes data centers. It's the company's biggest investment in Europe, and will help grow Google's services including Search, Maps and Gemini, the company wrote in a press release. Finland has been a "vital hub" for Google, since the company bought a paper mill in Hamina, Finland, in 2009 and converted it to a data center.
Google isn't the only hyperscaler with international expansion plans. Last month, Microsoft (MSFT) announced that its data center "region" in Saudi Arabia, called "Saudi Arabia East," which includes networking as well as cooling infrastructure, will be available to customers in November. The company is also investing $30 billion for AI infrastructure in the United Kingdom through 2028.
In March, Amazon (AMZN) announced it is increasing existing investments in Spain to EUR33.7 billion, roughly $39 billion, to expand data infrastructure.
Patrick Walravens, head of technology research at Citizens, told MarketWatch that local resistance to new data centers is one factor pushing hyperscalers to expand abroad. Another is that hyperscalers can "energize megawatts faster abroad," he said.
Other considerations to expand overseas include "regulation and risk diversification," StoneX analyst Yi Fu Lee told MarketWatch. He said Google's plan to invest in data center infrastructure in Finland is case in point that hyperscalers are drawn to lower-cost energy resources, which Nordic countries offer, given their abundance of nuclear, hydro and renewable energy, as well as cooler climates, which would reduce costs for operating data centers.
Those are some of the economic reasons. Public debates relating to power consumption, water usage, electricity pricing and tax incentives, especially in Texas, New York and Pennsylvania, are parts of the political considerations.
"Diversifying infrastructure across multiple geographies can help hyperscalers reduce regulatory, permitting, and political concentration risk over time," Lee said.
"[H]yperscalers are no longer optimizing solely for compute capacity; they are increasingly optimizing for power, policy, and proximity to customers," he added.
See also: Bill Gates issues a stark warning about AI - and Americans increasingly share his concerns
-Hannah Pedone