Data centers in Nvidia’s hometown stand empty awaiting power

Data center developers Digital Realty Trust and Stack Infrastructure have projects in Santa Clara, California, sitting empty for years due to insufficient electricity supply from the local utility, Silicon Valley Power, which is undertaking a $450 million upgrade slated for completion by 2028. This situation underscores a critical challenge for the US tech sector, where surging demand for data centers, driven by AI and cloud computing, is being significantly constrained by aging power infrastructure and slow utility upgrades, with AI electricity requirements projected to more than double by 2035. The delays are impacting even high-demand areas like Silicon Valley and Northern Virginia, despite strong pre-leasing activity for new data center capacity.

Analysis

Two major data center developers, Digital Realty Trust (DLR) and Stack Infrastructure, face significant delays in Santa Clara, California, with projects remaining vacant for years due to insufficient electricity supply from Silicon Valley Power (SVP). Digital Realty's 2019 application for a data center still awaits full energization, while SVP's $450 million system upgrade to meet demand is not slated for completion until 2028. This situation exemplifies a critical challenge for the US tech sector, where surging demand for data centers, driven by AI and cloud computing, is increasingly constrained by aging power infrastructure and slow utility upgrades.

BloombergNEF projects AI electricity requirements to more than double by 2035, intensifying pressure on power systems. Similar delays are observed nationwide, with Dominion Energy anticipating one to seven-year connection times for large data centers, and Amazon facing power denials in Oregon. Despite these infrastructure bottlenecks, demand remains robust, with 74.3% of the current US data center construction pipeline already committed to tenants.

Digital Realty, despite its Santa Clara facility being a vacant 430,000 sq ft building, is actively collaborating with SVP to secure the remaining 48 megawatts of power by the end of this year. This proactive engagement highlights the necessity for developers to navigate complex utility landscapes. Blue Owl Capital's (OWL) recent $50 billion investment in data centers, including significant projects with Meta Platforms (META) and Oracle (ORCL), underscores a strategic focus on securing the "right land and the right power" as crucial differentiators in this constrained market.

Key Decisions for Investors

• Investors should critically assess data center operators' strategies for securing reliable and timely power connections, as this is a primary determinant of project viability and revenue realization.
• Evaluate the geographic diversification of data center portfolios, favoring companies with developments in regions where power infrastructure is robust or where utilities demonstrate clear, accelerated upgrade plans.
• Monitor utility capital expenditure and project timelines (e.g., Silicon Valley Power's 2028 completion) as key indicators for future data center capacity coming online and potential revenue streams.
• Consider the long-term implications of rising electricity demand from AI on power grid stability and pricing, which could impact operational costs and profitability for data center providers.
• Focus on firms like Blue Owl Capital that explicitly prioritize securing land and power in their investment thesis, suggesting a more resilient approach to mitigating infrastructure-related risks.