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AI Demand Fuels Unprecedented Data Center Investment Boom

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As we inch closer to the conclusion of 2023, the fascination with AI on the global stage continues to surge unabated. Issues range from the escalating fear of job losses tied to AI, the surrounding controversy on OpenAI, to the outlook of artificial general intelligence (AGI). Almost every week, AI stories are taking a central stage in the tech news cycle.

Presently, global enterprises are in a race to broaden their AI use. The expansion is fuelling what may be seen as a subtle revitalization in a related sector: data center investment. These new AI-integrated solutions will be needing an increased level of processing capability, thereby making data centers more appealing for long-term investments to private equity and world infrastructure funds.

Just last week, the notable partnership between US investment powerhouse Blackstone and Digital Realty, a major player in data center operations worldwide, unveiled a new data center joint venture (JV) valued at $7 billion.

The collaboration, which is financed by funds associated with Blackstone that are led by Infrastructure, Real Estate and Tactical Opportunities, will lead to the establishment of four new hyperscale data center nodes across Frankfurt, Paris, and Northern Virginia. This deal will result in ten additional data centers, enhancing the total IT capacity in these regions by an impressive 500 megawatts.

46 megawatts of this capacity are currently under development, with the aim of the firms to have deployed 100 megawatts by 2025, with the complete capacity set to be in place by 2026.

According to Jon Gray, President & COO of Blackstone, “Data centers are experiencing once-in-a-generation demand growth, driven by cloud adoption and the AI revolution.” He added, “Digital infrastructure is one of our highest conviction investment themes as a firm, and this transaction with a trusted data center operator in Digital Realty is another example of how we are investing behind this trend.”

Blackstone, in the JV, is expected to hold 80% equity. This portion amounts to approximately $700 million of its starting capital contributions. The remaining stake of 20% is to be held by Digital Realty.

The approval of the deal is dependent on regulatory consent. Once they obtain the clearance, both partners anticipate the deal to be accomplished in two stages in the first half of the upcoming year.

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