Data centers have been one of the most desirable surprises in the real estate sector, producing strong gains for real estate investment trust investors for recent years. The huge facilities are pieces of AI infrastructure essential to a mission, which explains why many of the world's largest technology companies have billions of dollars data center investments. However, Lux capital partner Josh Wolfe Concerned that the data center sector shows signs of a bubble ready to pop.
Data centers expenditure at the speed is to exceed $ 405 billion in 2025, which is a 23% increase over 2024, back Statista.com. This sector used to be dominated by data center reits like Equinix (NASDAQ: Scriptical)) Realty Digital Trust (NYSE: Tiny). However, they are now facing competition from Tech Titans as Microsoft (NASDAQ: Msft), Amazon (NASDAQ: Amzn), and meta (NASDAQ: Meta), who would rather own and execute facilities than to rent them forever.
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Runaway's data center drives increasing AI capabilities, but Wolfe also believes it could be creating “unreasonable” demand. In May, he told the Axios Summit AI he sees similarities to the prosperity of past technology. Cloud computing and fiber optic network investments created many millionaires in the 1990s and early 2000s. Wolfe remembers that many of those investors were abandoned holding the bag when the production exceeded demand.
“I think you're going to get the same phenomenon now,” said Wolfe. He identified the potential danger of thinking in the technology sector, where construction data centers appear prudent for individual companies. However, he fears that multiple companies are building hyperscale data centers at the same time, “together become unreasonable.” “He won't necessarily continue,” he warned.
Wolfe also said that the potential result of the bubble popping is extending to other sectors. Data centers use incredible amounts of power, which have driven rapid growth in the nuclear power sector. “One takes associated is the energy requirements, it is presumed, because you need all these data centers,” Wolfe said. “Then you need a small modular reactors, so you get speculative capital that goes into energy provision in it.”