LIVE MARKETS-Data center buildout delays may create winners and losers

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DATA CENTER BUILDOUT DELAYS MAY CREATE WINNERS AND LOSERS

Demand for AI computing power continues to outstrip available supply, suggesting that prolonged delays in the buildout of data centers could create winners and losers, according to Apollo Global Management's Chief Economist Torsten Slok.

Among the biggest beneficiaries would be owners of operating data centers, which could raise rents and maintain near-full utilization as would-be competitors struggle to bring new facilities online. Hyperscale cloud providers that secured power, land and computing chips early would also be advantaged because they can continue serving customers while rivals wait for new capacity, Slok said.

Landowners and developers that already possess grid access, permits and power interconnection agreements could also see the value of those assets rise, as power availability has become one of the most scarce inputs in data center development.

Slok said equipment makers supplying transformers, switchgear, generators and cooling systems may similarly benefit from extended project timelines. Long order backlogs and constrained manufacturing capacity allow suppliers to maintain pricing power, particularly for equipment with lengthy lead times.

Power producers could also emerge as winners if electricity infrastructure becomes the primary bottleneck. That would increase the value of gas-fired generation, fuel cells, batteries and other forms of on-site power solutions that can help data centers bypass grid constraints, he said.

The biggest losers of possible delays in the pace of data center construction will be concentrated among companies and investors counting on AI expansion for revenue, growth and valuation appreciation, according to Slok.

For hyperscalers, slower deployment could cap revenue growth because computing capacity, rather than customer demand, becomes the limiting factor and "committed capex keeps accruing while capacity sits idle", he said.

Furthermore, Slok said AI labs, startups and enterprise customers could face higher costs and reduced access to computing resources, making it harder for small players to remain in business. Developers and investors financing projects under construction may also come under pressure as delays postpone cash flows while interest expenses and carrying costs continue to accrue.

Equity investors with exposure to the AI trade could see earnings expectations revised lower and valuations compressed if new infrastructure is delayed. As for the broader economy, slower construction of AI infrastructure would likely defer productivity gains expected from the technology while reducing a source of investment that has supported economic growth, Slok argued.

"A delay hurts returns by pushing cash flows out, but the asset remains and may become more valuable," Slok said. "The real risk is that scarcity unwinds, for example if supply catches up in a rush or demand softens — which would erode the premium on existing capacity."

(Chibuike Oguh)

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