Data centers at the crossroads of technology and resilience

Navigating demand, geopolitical shifts, scaling complexities and supply chain challenges in the age of AI

The data center industry is growing exponentially. With investments projected to reach $1 trillion by 2027, the rapid advancements in artificial intelligence (AI) and other transformative technologies are reshaping how businesses and governments approach digital infrastructure. This rapid expansion is fueled by the interconnected efforts of hyperscalers, operators, developers, energy and network providers, original equipment manufacturers (OEMs) and infrastructure investors. These data center ecosystem players are addressing the industry’s core challenges — scalability, reliability and efficiency — while enabling continued delivery of innovative solutions.

As AI fuels the pace of innovation, including the rise of agentic AI, the demand for compute power is surging. AI’s success depends on accessible power to run the technology, and that demand is driving innovation and optimization across the ecosystem, from the chips to the data center operations to the power sources themselves. With increasing energy demands and long development lead times, optimizing existing infrastructure is essential for resiliency. As data centers become the backbone of the digital economy and a cornerstone of modern global infrastructure, proactive and integrated strategies will be key to navigating industry challenges and increasing return on investment.

In this high-stakes environment, achieving growth requires a delicate balance — scaling fast enough to meet demand while remaining resilient against geopolitical shocks, supply chain turbulence and rising energy needs.

The surge in demand for data centers is being fueled by technological breakthroughs. AI, including machine learning, generative AI (GenAI) and agentic AI, require energy-intensive GPUs and accelerators that surpass the draw of traditional processors. AI also requires innovative cooling solutions that compel data center operators to rethink conventional designs. And the continued expansion of cloud computing, edge computing and the Internet of Things (IoT) further increases consumption.

With global data center power consumption projected to double by 2026, hyperscalers and data center operators/developers are facing fierce competition for energy, regional constraints, climate risks and rising costs.¹ Practical strategies for navigating these challenges include holistic site feasibility, future-proofing energy costs through scenario modeling and integrating renewable energy sources. Data center providers need to continuously innovate with energy-efficient approaches — such as adaptive cooling and on-site microgrids — and optimized hardware to balance performance with sustainability.

As enterprises prioritize latency reduction, ramp up AI investments and increasingly lean on digital infrastructure, data centers are becoming indispensable to transformation across industries — and territories. Geographically, the growth in data center demand varies significantly. North America and Europe remain key markets due to their established infrastructures and mature digital economies. Meanwhile, rapid urbanization and digitization efforts, often backed by government initiatives, are spurring growth in the Asia-Pacific region. Emerging economies in Africa and Latin America are also joining the landscape, highlighting a global push to benefit from the exponential growth of AI. This regional diversity, coupled with technological advancements, reinforces the central role of data centers in driving global economic growth and innovation.

Data center expansion is not just a technological imperative –– it’s a geopolitical necessity. Countries are increasingly wary of over-reliance on infrastructure concentrated in risk-prone regions. Natural disasters, regulatory shifts and political instability have heightened the call for diversification that bolsters operational resilience.

Many governments are offering incentives to attract foreign investment while advancing national digitization initiatives. However, with these opportunities come complexities, including stringent data sovereignty laws, privacy regulations and national security considerations.

Geopolitical tensions, such as trade restrictions and export controls on critical technologies, pose challenges. The US government’s export restrictions on AI chips and tariffs on foreign components, for example, underscore the fragility of global supply chains and the importance of contingency planning for data center operators. Additionally, entering new regions often exposes hyperscalers and data center operators/developers to heightened security and privacy regulatory demands. Many non-US geographies lead with stricter regulatory frameworks driven by individual privacy rights and government control over technology infrastructure. These rapidly evolving regulatory agendas can be daunting. Companies need to navigate a patchwork of regional policies while balancing costs, infrastructure capabilities and market demand.

Supply chain disruptions delay project timelines and increase costs, particularly for critical components like semiconductors, storage devices, cooling systems and backup generators. When hyperscalers and data center operators/developers face difficulties in sourcing critical components quickly enough, it can lead to bottlenecks. Strategic planning and risk management are essential to maintaining a resilient supply chain that can support the rapid growth of data centers.

Trade policies, including tariffs and export controls, are further exacerbating supply chain constraints by limiting access and increasing costs to essential data center infrastructure components, forcing companies to seek alternative sourcing strategies and regional diversification.

So, how can you overcome these hurdles? Strengthening supply chain resilience requires a multi-layered approach. At a strategic level, diversifying sourcing regions helps reduce reliance on single suppliers and mitigate geopolitical risks. Developing strong supplier relationships and fostering collaboration across the supply chain enhances adaptability and risk management. On a more tactical level, establishing approved vendor lists, regular supplier performance reviews and e-procurement enhance transparency and efficiency. Robust demand forecasting and close collaboration with key suppliers can help align production with forecasted demand — anticipating potential shortages before they arise. These proactive measures help hyperscalers and data center operators/developers mitigate risk and make sure critical materials are available when they’re needed.

Data center developers and investors face real estate scarcity, power constraints and growing private equity competition to deliver value and get ROI. As Tier 1 market locations — those with well-established infrastructure, high connectivity and strong demand — become harder to secure, site selection is shifting from connectivity-first to power availability and cost efficiency. While this shift expands development options, it also requires careful market assessments to support infrastructure readiness and regulatory compliance.

Rising demand and competition are driving up land costs and complicating strategic site selection, making strategic business relationships, joint ventures and M&A essential for capturing value. A structured approach to market entry, transaction execution and post-deal integration — backed by thorough due diligence and risk assessments — can help investors align with market trends, optimize costs and achieve scalable growth in a competitive landscape.

A major challenge in the data center ecosystem is making sure issues at one facility are effectively communicated to cross-portfolio decision-makers. Construction teams and IT professionals should work within well-structured governance models to minimize disruptions and optimize risk management. This is particularly critical as data centers scale rapidly, requiring robust frameworks to support operational continuity and compliance.

Rapid infrastructure growth and complex supply chains can inherently increase the attack surface, amplifying the risk of security breaches. Accordingly, cybersecurity and physical security risks are becoming more prominent as data centers expand and utilize more advanced technology. While automation can address some challenges, large-scale expansion demands focused attention on vulnerabilities. These areas are often overlooked but represent significant risks as new facilities and teams are added. With growing threats from cyberattacks and infrastructure vulnerabilities, organizations should implement holistic risk management frameworks that address both digital and physical security concerns. Strengthening security protocols and investing in advanced monitoring technologies are essential for safeguarding critical infrastructure.

Scalability remains one of the biggest challenges for hyperscalers and data center operators/developers. Companies struggle with rapidly deploying data centers, putting the proper infrastructure in place and maintaining operational efficiency. Meeting AI-driven demand requires balancing speed with precision — building data centers quickly enough to capitalize on market opportunities while setting them up to run at peak efficiency. And to build, hyperscalers and data centers operators/developers have to align diverse stakeholders — including regulators, utility providers and contractors — whose individual priorities can potentially drive up costs and disrupt timelines. At the same time, integrating evolving designs and managing potentially siloed workflows add layers of complexity.

Compounding this balancing act is the need for specialized talent to manage and support these high-tech facilities. As data centers increase in size and complexity, the demand for skilled engineers, IT specialists and operations professionals is surging. Companies should consider investing in training programs and workforce development initiatives to develop the skills to support ongoing expansion and operational excellence needed for large-scale facilities. And with resource scarcity in necessary skills, managed services can supplement capacity by, for example, providing project management support or IT support to implement and maintain applications.

Finding ways to optimize costs without sacrificing performance and reliability can be daunting. Balancing cost per megawatt with design choices is a constant focus, such as weighing standard modular efficiency against costlier innovations. Balancing modular data center designs with adaptability to accommodate rapid technological advancements allows for quicker deployments while maintaining flexibility for technological upgrades.

The convergence of industries such as construction, energy and IT adds another layer of complexity to data center scaling. Effective collaboration across power providers, developers and data center operators is crucial for innovation. Hyperscalers and energy providers are working together to develop sustainable solutions that not only meet high-performance demands but also align with global energy efficiency goals and environmental considerations. Site selection requires assessing climate risks, biodiversity impact and renewable energy access to secure long-term viability while reducing ecological disruption. Energy optimization remains crucial, with the data center ecosystem investing in efficient cooling, load shifting and more power efficient components to lower operational costs.

By integrating climate risk assessments, renewable energy strategies and robust reporting mechanisms, hyperscalers and data center operators/developers can enhance efficiency, reduce costs, comply with evolving regulations and advance net zero goals while strengthening community and regulatory relationships. These approaches can unlock value and mitigate risks within the data center value chain.

As the data center industry continues to expand, stakeholders across the ecosystem — including hyperscalers, operators, developers, energy and network providers, OEMs and infrastructure investors — face significant challenges to sustain growth. As the industry evolves, those who act decisively and strategically are better positioned to seize opportunities for transformative growth and capitalize on the burgeoning opportunities within the data center ecosystem.

PwC helps stakeholders across the data center life cycle, offering deep experience in:

• Risk management and cybersecurity
• Supply chain optimization
• Energy strategies
• Optimizing project delivery
• Supply chain resilience
• Sustainability initiatives
• Navigating regulatory environments
• Deal strategy and execution
• Tax strategies and compliance
• Tariff and export controls

_{1“Electricity 2024.” International Energy Agency. https://www.iea.org/reports/electricity-2024/executive-summary (Accessed 7 February 2025).}