The Data Center Bubble

It’s AI this and AI that on Wall Street everyday. “AI-related equities constitute no less than 40% of current equity market cap,” reports the latest Grant’s Interest Rate Observer, citing Bank of America strategists.  This year’s bubble in stocks means the Austrian Business Cycle Theory will be ignored again until it all comes tumbling down. This all starts with the highest order good, land. Bisnow.com tells us,

Nationally, sales of land earmarked for future data center development totaled roughly $3.3B in the first three months of 2026, up 141% from the same period in 2025, according to data provided to Bisnow by Avison Young. Roughly 30% of all spending on development sites in the first quarter went to data center land deals, up from about 19% in 2025.   

Nationwide, the public has had it with data center development, making it hard to find large available tracts that can be zoned for data centers. Local politicians listen to the neighbors who vote and the entrepreneurial process is squelched by the Not-in-my-backyard gang. But, as CRG Chief Operating Officer Steve Schnur told Bisnow, “If you're in a state that is a business-friendly state and you have access to power and you have a large piece of land, oh, my gosh, you're sitting on a gold mine.” 

Development site sales volume rose 55% year-over-year in Q1 to $11.1B, more than any other real estate asset class, including multifamily, industrial, retail and office.  

While land development goes up, needed power generation can’t keep up. “In Q4 2025, developers only added 25 gigawatts of electricity capacity to their project pipeline, half of the capacity added the previous quarter,” writes Ryan Wangman for Bisnow.

Parcels with power today are in high demand, as the waitlist for grid connections is years long. U.S. data center power demand is expected to increase from 31 GW in 2025 to 41 GW in 2026 and 66 GW the year after. Andy DeVries, head of U.S. investment-grade research at CreditSights, reported that analysts estimate that data-center demand will grow to 108 gigawatts in 2030.  “Yet at the end of the first quarter,” writes Grant’s  “utilities had already contracted a total of 127 GW of new data center capacity—i.e., that which is deemed “firm” and/or “committed.” Adding 127 GW to the 45 GW of existing capacity would put 2030 supply at 172 GW, a potential overbuilding of 64 GW.”

Bisnow points out some specifics.

A few key Northern Virginia deals illustrate how much the market has grown. Amazon’s data center arm scooped up 44 acres in Northern Virginia for $120M in February, up from $39.5M when the property was last sold in 2021. Amazon Web Services last year paid $700M for a campus in the area entitled for up to 3.5M SF of data centers — 1,272% more than the $51M the seller paid to put the site together in 2021 and 2022.   

“It’s wild,” Steve Schnur said. “It’s something we probably haven’t experienced in my couple of decades in the business.”  

If you’re not in the dirt at the right price, any project is doomed. “The hard part about land is construction costs go up and down, they can change 30%, but are rents changing 30%? Are they going up 30% to cover for that? No,” Colliers Executive Vice President Anne Dempsey said. “You can only pay so much for the land in order to make the deal work.” 

Meta had estimated its huge Hyperion data center’s cost was $27 billion last year.  Bloomberg reported last month the cost is $200 billion. Tania Tsoneva, head of infrastructure research at CBRE Investment Management, told Grant’s that “data-center construction costs now range from $10 billion to $12 billion per gigawatt, not counting the cost of land, servers and chips.” The possible 64 GW overbuild would represent $640 billion’s worth of overbuilding before a single Nvidia Corp. invoice is paid. 

Of course this has all happened before. Railroad equities made up 63% of American stock market capitalization in 1881. Grant’s writes, “In the 15 deflationary years until 1899, 521 railroad corporations controlling an aggregate 78,582 miles of line entered receivership.” 

Margin debt to a record high in April, coming in at $1.30 trillion. This marked a 6.8% increase from March and a 53.3% rise compared to the previous year. We’ve seen this movie before.