What's Next For The AI Hype Cycle And The Data Center Boom? Industry Leaders Make 2025 Predictions

The data center industry’s skyrocketing energy needs became front-page news last year, and those power woes aren’t going away anytime soon.

But industry leaders expect that in 2025 a clearer picture will emerge of how power shortages and artificial intelligence are combining to redraw the data center map. It will also be a make-or-break year for AI as tech giants look to make money from the products and services driving the data center boom. 

Twenty-five leaders from across the data center industry told Bisnow about their predictions for the trends, changes and challenges that will shape the data center landscape in the year ahead. While the details revealed in their crystal balls varied, some common themes emerged about the industry's future. 

These data center experts all foresee AI demand continuing to swell development pipelines beyond the limits of regional power grids, with little chance of a slowdown even if Wall Street sours on the AI economy. Most anticipate power constraints continuing to prevent data center construction from keeping pace with demand, although developers will increasingly turn to on-site power generation.  

Greater clarity is expected as to how AI will change the data center map, although there is disagreement as to what this new landscape will look like. Some industry leaders anticipate resurgent demand for modular “micro” data centers and other “edge” solutions, while others see growth pivoting back toward the sector’s traditional primary markets. 

One of the only areas of certainty for the data center sector in 2025, experts say, is that its biggest problems aren’t going anywhere.  

“I wish I could say that things are going to be radically different from where they are today,” said Jason Carolan, chief innovation officer at data center provider Flexential. “It’s going to be a similar evolution of the supply and demand dynamics around infrastructure and power.”

Here are the trends and dynamics that experts predict will shape the data center market in 2025.

AI Arms Race Collides With The ‘Trough Of Disillusionment’

Few within the data center industry believe there will be any significant demand slowdown over the next year.

Big Tech hyperscalers like Amazon, Microsoft and Meta will expand development pipelines as they pursue gigawatt-scale campuses to support AI, an accelerating trend that will make 2025 “the year of the AI factory,” according to Applied Digital CEO Wes Cummins.

While Stream Data Centers Chief Strategy Officer Mike Armstrong anticipates supply and demand moving closer to equilibrium, many industry leaders told Bisnow that their greatest concerns for the coming year relate to their ability to keep pace with demand growth amid constraints on power, critical equipment and labor that are stretching development timelines. 

“Demand is so great, and only growing,” Lindsey Bruner, chief operating officer at CleanArc Data Centers, said in an email to Bisnow. “How do we sustainably create and support the ecosystem that underlies data center delivery in the face of increasingly enormous projects (both in terms of size and costs) – ie, labor, delivery partners, and manufacturers.”

But more than two years after ChatGPT’s success kicked off Big Tech’s AI arms race, there is also some apprehension that 2025 could bring a moment of truth for many of the AI products, services and startups pulling in billions of investor dollars. The coming year will see increasingly advanced AI put to use by more corporations and placed in the hands of more consumers, but the clock is ticking to determine whether these AI use cases can make money. 

Analytics firm Gartner sees the hype cycle for generative AI entering what it terms the “Trough of Disillusionment,” in which interest in a technology fades after it fails to deliver quickly on lofty expectations. The question of whether there is an “AI bubble” set to pop in the months ahead hangs over Wall Street and the tech ecosystem as a whole, particularly as leading AI firms like OpenAI post billions in losses. 

“There’s significant money that doesn’t necessarily have line of sight to a revenue base,” Carolan said. “There’s a question out there of when will AI platforms actually start generating cash with all the capital investment that they’ve seen.” 

Still, Carolan and other prominent voices across the data center sector said the industry will be insulated from the potential volatility facing its largest tenants. This is primarily because the credit-grade tech giants driving the bulk of data center demand are spending trillions on AI infrastructure with long-term outlooks that are unlikely to be derailed by short-term investor skepticism.

Flexential Chief Revenue Officer Patrick Doherty pointed to another safety net protecting data centers from the fallout of a potential AI bubble: a growing demand backlog from enterprise tenants. 

Hyperscalers have dominated the race for data center capacity and now routinely prelease planned inventory in major markets years before it is built. The gap between hyperscale and enterprise tenants is widening — most enterprise users haven't adjusted their data center procurement practices to account for this newly constrained reality and have thus found themselves with no options to expand their information technology footprint as quickly as needed. 

As corporations’ computing and data storage needs grow alongside the widespread adoption of AI, many of these midsized firms would jump at the opportunity to secure available capacity in major hubs were it to become available, softening the potential blow for providers if demand growth from hyperscalers declines.

Industry leaders predict a growing number of colocation firms will explicitly target enterprise customers as a growth opportunity in the year ahead. 

“We expect some developers will revert focus to enterprise-size loads in core markets with the tenant base being severely underserved,” said Andy Cvengros, managing director and U.S. data center head at JLL.

Surge In On-Site Generation Won't Solve Power Crisis

Skyrocketing energy use by data centers became major national news in 2024. The industry is almost single-handedly driving up U.S. electricity demand for the first time in decades as new data centers add the equivalent of a second New York City to U.S. grids annually, according to Bain & Co. 

These power woes aren't expected to improve over the next 12 months, with industry leaders expressing a broad consensus that power will continue to be by far the most significant limitation on the build-out of new data centers. They say developers will continue requesting gigawatts at a time from regional utilities, and wait times for grid connections will remain close to 10 years in some markets. 

While billions of dollars in infrastructure improvement projects launched by utilities and the advancement of new power generation technologies like modular nuclear reactors have fueled confidence that solutions to the power crisis lie ahead, energy availability is unlikely to meaningfully improve until the end of the decade, in even the most optimistic predictions. 

But while 2025 likely won’t bring relief for data center firms desperate for power, it will bring greater clarity as to the scope and scale of the industry’s energy crunch.

Utilities across the country have seen demand pipelines jump by upward of 700% due to connection requests for data center projects, but those numbers are likely inflated. Many such grid interconnection requests are for speculative projects that are unlikely to materialize or from hyperscalers exploring multiple sites in a region where they plan to build a single campus.

In the coming months, a growing number of utilities across the country will enact new fees and rate structures targeting data centers that require significant upfront payments to join interconnection queues, Cvengros said. The result will be fewer dubious power requests, speculative projects dropping out of existing pipelines, and utilities gaining a more realistic picture of how much power data centers actually need. 

“Utilities will continue to shift their policies to make the barrier to entry much more difficult,” Cvengros said. “We believe that you’ll see new developers and land speculators drop out of contract on sites and cancel power requests as purchase contracts and power requests require nonrefundable deposits and no tenants or buyout partners have been secured.”

As utility power remains scarce, developers will increasingly turn to on-site generation and behind-the-meter power solutions, particularly natural gas. The past six months have seen the data center industry become increasingly reliant on natural gas, but several executives told Bisnow that shift will accelerate in 2025.

“I was just on the phone with a company that’s doing on-site generation, and they're just going through the roof in terms of people trying to find alternatives to using utility power,” Flexential’s Carolan said. 

The Data Center Map Will Be Transformed, But Leaders Disagree On How

AI and power constraints will continue to reshape the data center landscape. What that landscape will look like in 12 months depends on who you ask. 

Power usurped all other site considerations for data centers last year, with hyperscalers willing to build almost anywhere they could find enough available electricity. Locations in places like Madison County, Mississippi, and Richland Parish, Louisiana, that would never have been considered for data center projects just two years ago are now slated to host two of the largest campuses ever built by Amazon and Meta. More such projects are expected in the coming months. 

Throughout 2025, data center developers and investors expect to gain a better understanding of which of these hyperscale outposts will evolve into viable data center markets beyond a single megacampus, said Bobby Little II, senior director of investor relations for NTT Global Data Centers Americas.

The existence of a hyperscale campus often catalyzes the development of a digital infrastructure ecosystem around it, as fiber networks are built out where none existed previously and other developers look to build near the hyperscaler’s infrastructure.

Little pointed to South Carolina and Alabama as markets where a hyperscaler’s presence has spurred the emergence of a minor industry hub. He expects the coming year to bring greater clarity as to whether similar ecosystems will emerge around anticipated Big Tech campuses in data center hinterlands like Louisiana, Mississippi, Florida and Missouri. 

“Now that availability of power has usurped prime location in site selection criteria, which of these ‘experimental’ emerging markets yields strong outcomes, attracting enough hyperscale logos to come along for the ride and which turn out to just be large piles of wasted due diligence and pre-construction dollars?” Little said in an email to Bisnow. “[It] will be interesting to see if these grow even slow legs as we’ve seen previously in locales such as South Carolina and Alabama, where a large hyperscaler plants a flag and the herd slowly but surely begins to collocate in proximity.”

JLL’s Cvengros anticipates developers returning their focus to the industry’s core markets, which he says are expanding in size geographically into nearby submarkets to accommodate larger deployments. He pointed to Richmond, Virginia, Chicago, South Dallas, northern Indiana and Denver as top growth areas over the next year. Conversely, he said tertiary markets will see limited expansion due to the connectivity challenges in those areas. 

Yet other executives painted a very different picture of how they expect the data center development landscape to shift in the year ahead. 

Some predicted an uptick in demand for edge data centers, or facilities that host smaller workloads close to clusters of end users or far from major industry hubs. It is a category that includes both colocation data centers focused on localized workloads and modular micro data centers, or prefabricated, self-contained units that can be deployed quickly. 

Interest in this slice of the data center market had waned over the past two years as the industry’s focus turned toward massive campuses for AI training. Now, Tonaquint Data Centers CEO Jim Buie expects the number of edge data centers to triple in 2025.  

This resurgent demand will be driven in part by the growth of AI inference, with low-latency deployments increasingly needed close to end users as adoption of AI technologies picks up steam, he said. It’s a prediction echoed by 365 Data Centers CEO Bob DeSantis, who anticipates a demand surge led by industries like finance, healthcare and pharmaceuticals that rely heavily on colocation. Micro data center providers like Duos Edge and Equus Compute Solutions also anticipate accelerated growth as enterprises in rural and underserved areas look to support AI applications. 

Beyond supporting AI inference, edge demand growth will also be driven by data sovereignty regulations, which require data to be stored and processed within specific jurisdictions, according to Buie. Meanwhile, DāSTOR CEO Kevin Mulqueen said that enterprise tenants shut out of major markets will turn to edge data centers when there are no other options.

“The complexity and volume of enterprise data have escalated alongside the industry’s pivot towards AI, as data centers increasingly focus on accommodating the immense workloads of AI and hyperscalers,” Mulqueen said in a written statement. “This shift leaves enterprise clients with fewer options for growth and requires them explore emerging markets, edge locations, and less saturated regions outside traditional data center hubs such as Silicon Valley, Northern Virginia, and London.”