From the creation of Myspace to ChatGPT, we are living in an increasingly digitized world. Technology is at the epicenter of our economy. Artificial intelligence has also been at the forefront of discussion, and with that comes data centers. While data centers are profitable, investors and operators need to focus on sustainability.

Amazon Web Services defines data centers as “a physical location that stores computing machines and their related hardware equipment.” Data centers can be broken down into four parts according to consulting firm McKinsey & Company: the facility itself, the industrial equipment, the IT hardware and the software. They’re typically owned and operated by big companies, such as Google, or by co-location companies that allow other companies to rent data center infrastructure.

Because of the growing demand for AI, data centers are lucrative assets for investors. It’s not only AI though. We use data in our daily lives whether we’re consuming media or using apps.

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Real estate company Coldwell Banker Richard Ellis states that data centers are essential because of “digital interconnectivity,” which is “critical to our daily lives and global economic growth.” Investment management company Blackstone reported that “data usage has increased 100 times over the past 15 years, and even more striking, more data has been created in the past three years than in all of history.” 

As the trend for data, technology and AI continues to increase, data centers will similarly experience growth in demand and importance. 

Currently, there are around 5,000 data centers in the United States, and Blackstone predicts that $1 trillion will be invested in U.S. data centers over the next five years — with an additional expected $1 trillion to be invested internationally as well. 

Data centers are profitable because of their growing demand and predictable revenue stream. Top companies are displaying investor confidence as AI revitalizes our daily landscape. For example, Blackstone has over $70 billion worth of data center assets and another $100 billion in their prospective pipeline. AWS operated a total of 38.2 million square feet of data center and office space in 2023, and Amazon plans to invest almost $150 billion in the coming 15 years.

As with most investments, there are associated risks and barriers to entry. Data centers are complex and not easy to build. Moreover, not all buildings can be converted to data centers, and the conversion to hyperscale data centers — massive data centers that have more capabilities — makes older data centers “less desirable,” according to CBRE. 

A key bottleneck, however, is that data centers require massive amounts of power and based on the rise of demand in AI and technology, they will likely require more power in the future. Currently, data centers account for 2.5% of U.S. electricity consumption, and CBRE predicts that by 2030, they could account for 7.5%.

McKinsey & Company estimates that hyperscale data centers can use as much power as 80,000 households. On a smaller scale, a ChatGPT search requires 10 times more power than a Google one. Generating an AI-generated video is equal to charging your phone 119 times.

Data center’s extensive energy consumption begs the question of sustainability. Data centers contribute to e-waste — hardware typically lasts 3 to 5 years — and greenhouse gasses. They also consume millions of gallons of drinkable water per day, since it’s used for cooling the systems.

Financial services company Morgan Stanley reports that the data center industry will emit 2.5 billion tons of CO2 by 2030. Currently, data centers and transmission networks are responsible for around 1% of greenhouse gas emissions, according to the International Energy Agency. If nothing is done to mitigate these harmful effects, both these numbers will grow and further enable climate change.

From a monetary and business perspective, not investing in sustainable energy can have dire consequences and negatively impact revenue streams. In July 2022, Google and Oracle experienced outages during a United Kingdom heatwave. In September 2022, X’s data center also suffered an outage due to California’s heat wave. Data centers contribute significantly to global warming, and if these assets can’t survive the heat, it creates a vicious and unnecessary positive feedback loop.

Currently, big tech companies like Google claim to have carbon-neutral goals. However, a closer look reveals that in 2023, Google wrote that they were no longer “maintaining operational carbon neutrality.” Microsoft’s emissions also increased by 29% since 2020 because of data center construction, according to NPR. 

Stakeholders and Big Tech can’t justify racing to build and invest in data centers without actively implementing green technology and understanding its repercussions. It’s not enough to make a commitment; there must be tangible action and change. While data centers are important in digitizing our economy, it can’t come at the expense of the Earth. Without properly alleviating data centers’ carbon footprint, investors and companies are trading short-term profits for long-term consequences. 

Janette Fu is a junior writing about her thoughts on recent financial, economic and business news. Her column, “Wealth & Wisdom: Finance 101,” runs every other Friday.