Enterprise IT leaders are grappling with significant uncertainties regarding the construction of data centers, primarily driven by the ever-shifting landscape of global tariffs and the evolving strategies around generative AI (genAI). The current tariff wars, particularly those instigated by the U.S., have raised questions about whether companies should consider establishing data centers outside of the country.
According to Forrester Senior Analyst Alvin Nguyen, the U.S. administration aims to boost domestic development, but this could inadvertently shift manufacturing capabilities away from the U.S. The tariffs, he observes, add another layer of volatility to already complex genAI data center strategies. “Right now, there’s too much variability. With all of the tariffs, this may be the thing that slows down AI,” Nguyen noted, indicating that a slowdown in AI could subsequently delay the development of data centers.
One response from European cloud providers to tariff concerns is a call for governments to shield cloud and digital services from the ongoing trade disputes. Francisco Mingorance, secretary general of CISPE (Cloud Infrastructure Service Providers in Europe), emphasized the importance of maintaining unrestricted access to cloud services.
Timing Challenges
The timeline for constructing data centers varies widely, with builds taking anywhere from six months to three years, complicating planning in the face of fluctuating tariffs. Companies are considering bulk purchasing of components to circumvent potential future tariffs, but this strategy requires careful timing to ensure parts arrive before the tariffs take effect. Nguyen notes, however, that not all organizations will have the resources to successfully execute this plan.
The complexity extends beyond tariffs. Existing data center strategies must also account for available energy, cooling, water resources, and geographic proximity to service users. Fortunately, advances in automation are reducing concerns over finding skilled personnel, alleviating some labor costs.
Difficult Decisions Ahead
Enterprise IT leaders face tough choices driven by uncertainty about future tariffs. Nguyen suggests that current tariff conditions may lead companies to reconsider the size and location of their data centers. Proximity to heavily populated areas could pose competition for resources such as power and water, prompting companies to favor smaller, more suitable facilities.
Despite the challenges presented by tariffs, Nguyen advises against drastic changes to data center plans. “Because of the long-term planning and all of the potential policy changes, I wouldn’t change my data center plans that much,” he concludes.
Rising Costs and Market Volatility
As the tariff landscape becomes increasingly convoluted, costs associated with data center construction are expected to rise. Industry expert Scott Bickley highlights the numerous components affected by new tariffs, including servers, memory, and construction materials. With countries like China facing a substantial 54% tariff rate, the material costs of data center construction might increase by approximately 20% overall, leading many enterprises to reassess their capital expenditure plans.
Additionally, Bickley warns of potential trade war escalation, predicting that some enterprises may need to pause data center projects indefinitely while the situation unfolds. In contrast, industry analyst Matt Kimball believes that most data center projects can be adjusted without significant disruption, pointing out that these facilities typically have a long lifespan, allowing teams to maneuver through short-term volatility.
In summary, the landscape facing those involved in data center development is complex and fraught with uncertainty primarily due to tariffs and shifting economic policies. As organizations assess their strategies, factors such as timing, resource allocation, and cost management will be pivotal in navigating this challenging environment.
