The Data Centre Gold Rush

It is now a fact well-established that data is the new oil. What is not often stated is where this so-called new wealth actually gets refined, stashed and processed. These are no longer small server rooms in long-forgotten basement utility rooms. The humble data centre, once the equivalent of a dusty warehouse, has risen spectacularly up the political pecking order, almost becoming an indispensable national security asset itself. And today we find ourselves, without much exaggeration, in the midst of a worldwide gold rush over the control of these data centres, a melee over digital domination rewiring the established international order and the very meaning of power.

From Backroom to Battleground

The prototypical data centre was a seven feet by two feet closet somewhere in the back of the office, often unmarked and surely unromanticised. Now, these sprawling server farms – handling nearly 95% of all internet traffic – are not merely digital colossuses, but strategic assets akin, in importance, almost to a national power plant or a vital port.

Today, countries are ever concerned, and rightly so, on the use of foreign technology on their critical systems. Their new ambition is being able to better manage domestic stores of data with the same strategic thinking as done with energy. This physical transition has signalled data centres are no longer backrooms; data centres are battlefields.

The feature that perhaps stands out the most in this new environment is the unprecedented politicization of data. Global data flows, previously uninhibited, are now facing a maze of regulation and sometimes straight out prohibition in the name of digital sovereignty. The European Union and Chinese governments, for example, are coming up with multiple legislations to keep sensitive information within national silos. The primary fear is processing data offshore might make it vulnerable to all forms of intelligence or control by a foreign government. The consequences of this scenario to international business are dismal: a divided digital universe in which its data sandbox determines market accessibility and functional liberty.

Silicon Sovereignty

The data center rush feeds on an insatiable need – a demand primarily triggered by the unfiltered burgeoning of artificial intelligence. Consider this: Every AI inquiry, every machine learning study, every individual web-based intercession must be processed and stored somewhere. This has resulted in a massive requirement of computing power, driving the data centre business towards unprecedented growth. According to estimates from Fortune Business Insights, the market is currently valued at a colossal $242.72 billion, and is expected to grow more than twice to over $584 billion by 2032. The number of hyperscale data centres is doubling approximately every five years; with so-called virtual digital cities operated by the likes of Amazon, Google, Microsoft, and Meta rising exponentially in number.

Countries have increasingly realised this strategic importance and are currently constantly jostling to lure these technology giants to their shores with lucrative tax breaks and expedited permits for the development of new server centres. The United States is currently the undisputed heavyweight with about 51% of the world’s data centres. This sheer dominance naturally gnaws at other nations, pushing nations everywhere to desperately develop their domestic digital capabilities in order for the sheer need of independence.

This signals a new era of strategic competition especially between the US and China, escalated to an extent some have even termed the new “digital Cold War”. The US, for example, has systematically tightened their supply of advanced equipment and chips to China with export checks and sanctions being built into processes. High-performance AI chips, mostly produced by American companies, fall directly under these export restrictions, throwing Chinese operators into the pan.

This is a definite indication: the US is going to do everything to preserve its hardware dominance in AI. The direct consequence: a more polarized international technology ecosystem where partners have to take sides or separate their chain.

The Price of Digital Dominion

All gold rushes however come with their own formidable challenges and this is no exception. Energy consumption is perhaps the most obvious one in this case. The estimated share of electricity consumption used by data centres is already close to nearly 2% percent of the total amount consumed in the world, and is only expected to skyrocket in the context of increasing service provision and AI implementation. The energy that is used to train giant AI models such as GPT-4, for example, exceeds 1.7 million kilowatt-hours of electricity. Beyond environmental concern, this results in increased stress on the grid, even pushing regulators to withdraw new approvals to data centres.

Outside direct energy needs, the sector is also having to contend with a mess of regulatory confusion and geopolitics. Fractured systems, such as EU GDPR and the Chinese Cybersecurity Law impose cumbersome licensing regimes and variable governing foreign investment. Attracting essential investment and satisfying security concerns of the nation is a fine tightrope to walk, leaving processes waiting for longer and costing more. Bureaucracy, it turns out, is a universal constant no matter what the industry is.

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The geopolitics of AI is at a grim crossroad. One of the paths is the expansion of fragmentation, a digital iron curtain splitting the world into incompatible technological worlds with limited data exchange. Such a situation further complicates the process of solving global problems, most of which are digital in their core. Will these data centres become a point of conflict or are they part of the foundation to a cooperative future? On the other path lies the opportunity for greater cooperation and dialogue. Recent AI summits point to a communal prayer to create common ground, at least in minimum global standards in AI security and in e-commerce. The next few years will surely test that resolve, and reveal whether large powers can in fact achieve agreement on common norms, or whether a chasing after personal digital supremacy will produce a splintering of the global internet that can not be reversed.