Key facts
- Data center projects' heavy power and water demands introduce credit risks for state and local governments, according to Moody's Ratings.
- These projects may require major expansion of power, transmission, and water infrastructure, with costs potentially falling on governments or ratepayers.
- Demand for AI and cloud computing is accelerating the growth of data centers, leading to significant investment and expansion by hyperscalers.
- Risks for the data center industry include potential overbuilding, technological obsolescence, and strain on local infrastructure.
- Regulated electric utilities are implementing strategies to mitigate risks associated with high data center power demand.
Moody's Ratings has issued a warning regarding the credit risks that the rapid expansion of data centers presents to state and local governments. The surge in data center projects, fueled by increasing demand for artificial intelligence (AI) and cloud computing services, brings substantial requirements for power and water infrastructure. According to Moody's analysts, this could necessitate major expansions of these essential services, with the associated costs potentially falling on governments or ratepayers if not fully recovered from the data center operators themselves.