GAM: The AI race requires significant expansion of data centers and infrastructure
15 SEPT, 2025
By Jamie Ross, Investment Manager, European Equities at GAM
Energy supply and security take center stage
Energy supply and security have become the most pressing issues for modern states. Two main themes overlap here. First, the conflict between Russia and Ukraine, along with Europe’s historical dependence on Russian gas, has triggered a drive toward energy independence. Second, artificial intelligence is driving a radical change in electricity demand. The United States is leading on both fronts. As often happens, Europe is following rather than leading – but we believe energy supply and security will remain central in the decades ahead, creating long-term investment opportunities.
The need for energy independence
For decades, Europe relied heavily on Russian natural gas, a relationship shaped by geography, infrastructure, and trade. The Russia–Ukraine war exposed this catastrophic geopolitical mistake. In 2022, Europe drastically reduced Russian gas imports, partly due to sanctions and partly because Russia cut supplies. This led to record-high gas prices and fears of shortages. Since then, Europe has focused on sourcing liquefied natural gas (LNG) from the US, Qatar, and others, reactivating coal plants, expanding renewables, and implementing energy-saving measures. Still, energy security remains fragile: infrastructure is outdated and, as recent supply issues in Spain show, unreliable under stress. Clearly, further investment is required.
In the US, the path to energy independence has been driven more by abundant natural resources than by a single geopolitical event. However, rising tensions with China have made independence a key national priority. Domestic production has increased, turning the US into a net exporter of natural gas in 2017 and oil in 2019. This hard-won position is likely to remain a strategic priority.
AI driving soaring electricity demand
At the same time, AI adoption is accelerating rapidly, requiring a major buildout of data centers and infrastructure and, consequently, a sharp rise in electricity demand. With more than 5,700 data centers operating today, and as many as 8,400 expected by 2030 (Financial Times), the sector is fast becoming a significant driver of electricity growth.
Electricity demand in developed economies has been flat for decades, but the US Energy Information Administration (EIA) now forecasts a steep increase. Long-term projections are highly complex, yet McKinsey estimates that data center consumption will rise more than twelvefold by 2050 to 4,480 TWh, equivalent to 17% of today’s total global electricity demand. The implication is clear: massive global investment is needed to meet AI-driven demand on aging energy infrastructure.
Where investment will be needed
Building a data center requires both direct and supporting infrastructure. Immediate needs include:
- Land and construction materials (30–40% of costs)
- IT and networking equipment such as servers, cabling, and other hardware (40–50%)
- Power and cooling systems (20–30%)
Supporting infrastructure focuses on electricity generation and grid capacity, cooling and water management, and networking systems.
Within electricity and the grid, several areas will require major investment:
Power generation – A balanced energy mix is crucial. Renewables will be key for corporate sustainability goals. Natural gas plants will continue to expand. The next decade is also expected to see major advances in small modular reactor (SMR) technology. Battery storage will be essential.
Grid infrastructure – Outdated systems must be upgraded to meet data center demand. This includes substations, high-voltage transmission lines, and overall grid expansion and replacement.
On-site energy solutions – An undervalued sector, including battery storage, backup generation (e.g., natural gas turbines), and systems protecting data centers during grid instability.
Conclusion
We strongly believe in the potential of artificial intelligence and recognize that the current geopolitical environment is driving investment decisions that will play out over decades, not years.
