Data Center Expansion Under Threat of Overbuilding, Ares Warns

October 8, 2025

AI Infrastructure Investment Faces Overcapacity risks, Experts Warn

A Notable influx of capital into Artificial Intelligence infrastructure is generating concerns about potential oversupply, as major investors compete to capitalize on the rapidly evolving AI landscape. These concerns were voiced by Kipp deVeer, Co-President of Ares Management, during discussions at the greenwich Economic Forum in Connecticut on Tuesday.

The Rise of AI Data Centers

The artificial intelligence revolution is driving immense demand for processing power,leading to a surge in investments within the data center sector.Firms like Blackstone, Brookfield, apollo Global Management, and Ares Management are strategically allocating resources to meet this escalating need. These investments are largely being presented as a more stable avenue for benefiting from the AI expansion, in contrast to the volatile nature of AI stock markets.

DeVeer cautioned that ancient patterns suggest overbuilding is a common outcome of such rapid capacity expansion.He noted that, historically, periods of intense investment in developing technologies often result in marginal excess capacity. He emphasized the importance of careful and measured investment strategies to mitigate these risks.

“Typically when this much capacity comes online, some of it at the end of the day has to be marginal,” deveer stated. “Us being selective and measured in what we build is vital.”

According to a recent report by Data Center Map, over 3.3 million square feet of AI data center space was under construction in Northern Virginia alone as of September 2024,showcasing the intense build-out currently underway. This represents a 35% increase year-over-year.

Did You Know? The global data center market is projected to reach $512.44 billion by 2032, driven by the demand for AI and cloud computing.

Navigating the AI Investment Landscape

Investment firms are actively seeking opportunities to provide the computational resources necessary for training and deploying large AI models. However, the rapid pace of technological advancement and the unpredictable nature of the AI market present significant challenges for investors. A key concern is accurately forecasting long-term demand and avoiding investments in infrastructure that may become obsolete or underutilized.

Pro Tip: Diversifying investments across different AI applications and geographic regions can help mitigate the risks associated with overcapacity.

Key Players in AI Infrastructure Investment

Firm	Investment Focus
Blackstone	Large-Scale Data Center Development
Brookfield	Acquisition and Expansion of Existing Data Centers
Apollo Global Management	Strategic investments in AI-focused hardware and software
Ares Management	Selective investment in strategically located data centers

The current investment climate mirrors that of the dot-com boom of the late 1990s, where excessive capital flowed into internet-related businesses, ultimately leading to a market correction. Experts suggest that a similar scenario could unfold in the AI infrastructure space if investment decisions are not carefully considered.

What factors do you beleive will be most crucial in determining the success of AI infrastructure investments? How can investors balance the excitement surrounding AI with the need for prudent financial planning?

The Long-Term Outlook for AI Infrastructure

Despite the risks of overcapacity, the long-term outlook for AI infrastructure remains positive. the demand for AI is expected to continue growing across various sectors, including healthcare, finance, manufacturing, and transportation. This sustained demand will likely drive continued investment in data centers and related technologies. However, future investment will likely be more targeted and selective, with a greater emphasis on efficiency, sustainability, and adaptability.

frequently Asked Questions about AI Infrastructure Investment

• What is AI infrastructure? It refers to the hardware, software, and network infrastructure required to develop, train, and deploy Artificial Intelligence models.
• Why is there a risk of overcapacity in AI infrastructure? Rapid investment and optimistic projections for AI demand can lead to an oversupply of data center capacity.
• Which companies are investing heavily in AI infrastructure? Blackstone, Brookfield, Apollo global Management, and Ares Management are among the leading investors.
• What are the implications of overcapacity for AI investors? Overcapacity can lead to lower returns and potential losses on investments.
• How can investors mitigate the risk of overcapacity? Diversification, careful market analysis, and a focus on sustainable technologies are crucial strategies.
• Is the current AI investment boom similar to the dot-com bubble? There are parallels, especially in the rapid influx of capital, but the underlying technology in AI is considered to have more long-term potential.

Share your thoughts in the comments below and let us know what you think about the future of AI infrastructure!

What specific factors contribute to the lag time between data center planning and operational readiness, and how does this impact market alignment?

The Looming Oversupply in the Data Center Market

Ares Management, a global investment manager, has issued a stark warning regarding the rapid expansion of the data center industry. While demand for data processing, storage, and networking continues to surge – fueled by artificial intelligence (AI), cloud computing, and the Internet of Things (IoT) – ares believes the current pace of data center construction is unsustainable and risks a significant market oversupply. This poses challenges for hyperscale data centers,colocation providers,and the broader digital infrastructure landscape.

Key Concerns Highlighted by Ares

ares’ analysis points to several critical factors contributing to the potential overbuilding situation:

* Aggressive Build-Outs: Numerous players, including real estate investment trusts (REITs) and private equity firms, are aggressively expanding their data center capacity. This is driven by the expectation of continued exponential growth in data demand.

* Long Lead Times: Building new data centers is a lengthy process, frequently enough taking 18-24 months from planning to completion. This lag time means decisions made today may not align with actual market needs by the time the facilities are operational.

* speculative Development: A significant portion of the new data center space being developed is “speculative,” meaning it hasn’t been pre-leased to tenants. This increases the risk of vacancy and reduced returns.

* Power Constraints: Access to sufficient and reliable data center power is becoming increasingly challenging in key markets. delays in securing power connections can further exacerbate the oversupply issue.

* Rising Interest Rates: increased borrowing costs impact the financial viability of data center projects, perhaps slowing down development or leading to project cancellations.

Impact on Different Data Center Segments

The potential oversupply isn’t expected to impact all segments of the data center market equally.

* Hyperscale Data Centers: Large cloud providers like Amazon Web Services (AWS),Microsoft Azure,and Google Cloud are likely to remain relatively insulated due to their scale and long-term contracts. However, even they may face increased negotiating power from suppliers.

* Colocation Data Centers: Colocation providers offering wholesale and retail space are more vulnerable. They rely on attracting a diverse range of tenants, and increased competition could lead to price wars and lower occupancy rates.

* Secondary Markets: While primary markets like Northern Virginia and Silicon Valley are seeing the most aggressive building, secondary markets may also experience oversupply as developers seek lower land costs and less competition. This impacts regional data center growth.

Geographic Hotspots & Cooling Challenges

Certain regions are particularly susceptible to overbuilding.Northern Virginia, currently the largest data center hub in the world, is facing significant concerns. The sheer volume of planned capacity raises questions about whether demand can keep pace.

Furthermore, the increasing density of data center equipment is driving up power consumption and creating challenges for data center cooling. Traditional air cooling is becoming less efficient, leading to a greater focus on liquid cooling technologies. This adds complexity and cost to data center infrastructure.

The Role of AI and High-Performance Computing (HPC)

The demand for AI infrastructure and HPC is a major driver of data center growth. Though, the power requirements of these applications are considerably higher than traditional workloads. This intensifies the pressure on data center power capacity and necessitates more efficient cooling solutions. The rapid evolution of AI models also introduces uncertainty about future demand patterns.

Mitigating the Risks: Strategies for Data Center operators

Data center operators can take several steps to mitigate the risks associated with potential overbuilding:

1. Focus on Power Availability: Prioritize sites with secure and scalable power infrastructure.
2. Embrace Sustainable Solutions: Invest in energy-efficient technologies and renewable energy sources to reduce operating costs and environmental impact.
3. diversify tenant Base: Avoid over-reliance on a single tenant or industry.
4. Strategic Partnerships: Collaborate with other data center providers to share resources and reduce costs.
5. Phased Development: Adopt a phased approach to development, scaling capacity based on actual demand.
6. Advanced Cooling Technologies: Implement liquid cooling or other advanced cooling solutions to improve efficiency and reduce power consumption.

Real-World Example: Northern VirginiaS Capacity Crunch

Northern Virginia’s “data Alley” exemplifies the challenges.Dominion Energy, the primary power provider, has faced significant delays in connecting new data centers to the grid due to capacity constraints. This has led to moratoriums on new connections in some areas, highlighting the critical importance of power infrastructure planning. This situation underscores the need for proactive engagement with utility companies and careful site selection.

Benefits of a Balanced Market

While the threat of overbuilding is real, a more balanced data center market could ultimately be beneficial:

* Lower Prices: Increased competition could lead to more competitive pricing for data center services.

* Improved Service Levels: Providers might potentially be incentivized to offer higher levels of service and innovation to attract and retain tenants.

* Greater Efficiency: The need to optimize resource utilization could drive greater efficiency in data center operations.

Looking Ahead: Monitoring Market Dynamics

The data center market is dynamic and constantly evolving. It’s