The AI boom is driving an unprecedented demand for data centers, but the U.S.’s position as a global AI leader is under threat due to supply chain constraints and infrastructure limitations. The transition to cloud-based services and generative AI applications is forecast to drive a 37% compound annual increase in AI spending out to 2032, according to Bloomberg. However, this significant growth is occurring at a time when supply chain constraints are limiting revenue growth among the largest U.S. data center developers, known as hyperscalers.
Hyperscalers have been flagging the data center supply chain as a headwind in their growth during quarterly earnings calls. If left unchecked, the U.S.’s progress and position as the world leader in AI innovation could be at risk. The U.S. currently hosts 45% of all data centers globally, but the products that fill these centers are often sourced from outside the U.S. Data centers require a complex mix of chips, servers, networking equipment, storage, cooling, and power, among other components to run. The four primary limitations on data center growth are the supply of chips and other production goods, tariffs, land availability, and reliable electricity.
The increased focus on reshoring production across the globe means countries are allocating significant resources to overtake the U.S. in AI and data center infrastructure. Nimble scaling with flexibility to solve the supply chain constraints is crucial for future growth.
Chip Demand Surge and Tariff Wars
Supply chain bottlenecks for semiconductor chips—most of which are manufactured in Asia—play a large role in the squeeze on data centers, because such chips are central to meet data center redundancy needs. The U.S. CHIPS and Science Act in 2022 allocated $280 billion in funding to stimulate domestic chip production. However, it will take several years to stand up new semiconductor manufacturing facilities; those funded by the CHIPS Act likely won’t be operational until 2028 or 2029. The U.S. is leading its peers in the onshoring movement for chip production. The next largest government chip stimulus was the European Union’s European Chips Act in 2023, which allocated €43 billion ($47 billion) to the sector.
Current regulations are also changing the landscape daily. The Trump administration has signaled an appetite to repeal or scale back the CHIPS Act. Further, escalating tariffs threaten to upend the data center supply chain with significant price increases. Primarily, China is a large provider of chips, servers, and networking equipment that are crucial for U.S. data center capacity. Canada is the primary foreign supplier to the U.S. of steel and aluminum, used in racking and data center buildouts. Some of the hyperscalers’ data center operations across the U.S. also are located in areas that are known to import some Canadian power, including in—but not limited to—Oregon, Washington, New York, Massachusetts, Ohio, and Illinois.
The Trump administration has also suggested additional tariffs, including a new tariff of 25% on semiconductors from Taiwan. This tariff would be devastating to the U.S. technology industry, given the centralized production of the most advanced chips within Taiwan. As costs increase to operate in the U.S., multinational companies have an incentive to bolster the data center capacity in other locations.
Can the Grid Handle Data Center Expansion?
In June of 2024, TD Cowen predicted that “U.S. data centers will represent 6.6% of all U.S. electricity consumption” by 2028. Their research went further, citing vital data center regions that were on the brink of running out of reliability-rated power. The estimates included Northern Virginia by 2027; New Albany, Ohio by summer 2028; Silicon Valley by 2034; and noted that Dallas, Texas, already exceeds its supply. According to a December 2024 report from the U.S. Department of Energy, data centers in the U.S. consumed 176 terawatt-hours in 2023, or 4.2% of U.S. electricity consumption. To put that in perspective, our data centers are consuming more than 54% of the total energy consumed by the entirety of Mexico and its 130 million citizens during that year.
The need for reliable power has led many hyperscalers to explore a “behind-the-meter” model, where they own and operate their own power sources. While they still need to connect to the grid for resiliency against outages, this model offers more control and easier forecasting for future scaling. The main challenge with this strategy, however, is the construction time required. Nuclear power plants, favored by technology companies for being both highly reliable
