The backlash against AI data centers is spreading
If you were to walk around Silicon Valley these days, you’d find nary a negative word about AI. It’s advancing fast. It’s powerful, so powerful we should be afraid of it. And if you’re not all in, you’re going to be left in the dust of history. We need to build more data centers to accommodate this amazing technology, and we need to do it quickly. We are ready to commit billions, even trillions of dollars to it, if you’ll only let us.
And there's the problem. Once you step outside the confines of tech bros and AI true believers, you find a very different attitude, especially when it comes to the growing thirst for data centers. Tech companies want to build 'em, but increasingly politicians and ordinary citizens are putting their foot down.
In March, I wrote a commentary in this space called "Everybody hates AI" about the growing backlash against AI in general. Over the last several months that dislike of AI has gelled into a movement against data center expansion, one that spans both sides of the aisle.
Taking action
New York became the first state to impose a moratorium on large data centers this month, pausing construction of facilities over 50 megawatts. Maine passed a similar measure last spring that was subsequently vetoed by the governor. There are a number of other initiatives in play across 14 states, although it's unclear if they will pass or not.
Regardless, politicians are reacting to negative feelings coming from the public. A May Gallup poll found that 7 out of 10 Americans oppose construction of data centers in their communities. Technology companies want to keep building, but the public is fed up.
Among the reasons are the impact on the environment, the use of resources like water and electricity, a belief it will lead to higher energy costs, and in some cases, a general disdain for AI. Supporters argue that data centers generate jobs and other economic benefits (although after they're built, data centers don't tend to be huge jobs creators).
Investors worry too
But it's not just community activists pushing back against this construction. Investors are beginning to as well. The big tech companies are continuing to spend at a historically high rate with the belief that if you build it they will come. In other words, someone will end up using these resources because AI is such a resource-heavy exercise.
For example, Oracle has placed a big bet on data centers and the market is beginning to question the financial burden, according to reports. Investors have been punishing the stock over the last month over concerns about its ballooning Capex numbers and a surging debt load associated with it.
Just this week, Alphabet reported huge growth in Google Cloud, up 82% year over year, but that was offset by a sharp increase in full-year capex guidance to a range of $195 billion to $205 billion, up from $180 billion to $190 billion. Executives on the earnings call also predicted a sizable increase in 2027, according to Yahoo Finance. The news rattled investors, pushing the stock down around 8% after the report.
Clearly investors, with a different set of concerns, are also questioning whether all this spending is really going to pay off in the end. Ordinary people worried about the impact of this construction on their communities care little about the problems of big tech companies, but when it comes down to cost, investors do. And suddenly two groups with seemingly different agendas are coming to the same conclusion: the cost of all this building may simply be too high.
~Ron
