Despite a sharp decline in AI-related stocks, Goldman Sachs projects that spending on data center construction in the United States will reach $125 billion by 2028, driven by robust demand and a growing backlog of orders from cloud giants. However, this massive pie is not being distributed equally; the overall growth of the sector is a very different story from the survival struggle faced by projects burdened with high levels of debt.

Recent volatility in AI stocks has prompted the same question for all of us: is this a bubble, or are we still at the very beginning of the journey? Amidst this confusion, a new assessment seeks to restore shaken confidence. The bank points out that, despite the sell-off in stocks, the appetite for investment in the "engine room"—that is, data centers—has not waned; on the contrary, it is intensifying.

What lies behind this massive appetite for spending?

The answer is quite simple: demand. Digital services and AI applications, which have permeated every aspect of our lives, place a significant burden on major cloud providers. The order backlogs presented by clients, combined with a lack of sufficient capacity, are compelling these companies to build new data centers.

This serves as a reminder that AI is not merely a software craze; it is underpinned by a vast physical infrastructure. In other words, while stock prices may be falling on our screens, concrete is still being poured on the ground.

What do the figures from Goldman Sachs tell us? According to the report, the institution has raised its forecast for 2026 from $67 billion to $80 billion, and for 2027 from $87 billion to $100 billion. Furthermore, for the first time, it projects spending to reach $125 billion by 2028.

These figures illustrate the substantial budgets that tech giants are allocating to strengthen the backbone of the digital world in the coming years. Moreover, there are currently data center projects totaling approximately 86 gigawatts under construction in the United States, with another $900 billion worth of high-reliability projects in the pipeline.

In other words, the demand side is not merely a matter of expectation; it represents an actual backlog of construction projects currently in the pipeline.

Will everyone receive an equal share of this pie?

It is difficult to say that everyone will benefit equally from this massive opportunity. Increasing regulations and bureaucracy tend to lead to project delays rather than outright cancellations. The distinction between a delay and a cancellation is significant: the former implies a shift in timing, while the latter signifies a loss of demand.

Furthermore, not all players in this high-stakes arena possess the same financial strength. Data center developers with excessive debt, in particular, are facing a serious struggle for survival due to rising financing costs and project delays. Some companies may not be able to hold on long enough for their operations to commence.

How can a company go bankrupt while the sector is growing?

This serves as a reminder that, in the world of investing, one must look beyond mere trends and also consider the health of a company’s balance sheet and its cash flow. The overall growth of a sector does not always align with the fate of individual companies; even the most promising narrative can fizzle out under the weight of heavy debt.

On one side, there are cloud giants with full order books and robust cash flow. On the other, there are developers reliant on debt to complete their projects—entities with little tolerance for interest rate hikes or delays. The same trend does not lift both equally; it may empower one while putting the other under duress.

To determine whether this is a "bubble" or merely the beginning of a long-term trend, one must examine two distinct layers. The first is the sector level, where demand, the construction pipeline, and spending forecasts continue to grow. The second is the company level, where debt, cash flow, and the ability to deliver projects dictate who will survive.

Key factors to monitor include whether spending forecasts are being revised upward, whether the 86-gigawatt construction pipeline is facing delays or cancellations, and how debt-laden developers are faring in their access to financing. While the broader narrative may be sound, it is entirely possible to end up with the wrong balance sheet within that otherwise promising story.

This content is for informational purposes only and does not constitute investment advice. ✔️

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