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AI Slowdown No Threat to Data Centers, Says Digital Realty CEO

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Digital Realty and Equinix stocks slumped after AI slowdown warnings, but CEO Andrew Power says cloud demand still drives the data center real estate market.

Shares of Digital Realty and Equinix, two of the largest data center real estate investment trusts, slumped on Monday after weekend warnings about a possible slowdown in the pace of artificial intelligence development. Digital Realty Chief Executive Andrew Power pushed back on fears that cooling AI ambitions would derail the property market that supports the technology.

Calls for a slower rollout came from major AI players Anthropic, OpenAI and xAI. Power said those pledges do not amount to "pencils down" for AI or the real estate that houses it. "There's tremendous digital transformation happening that is not connected to AI," he said in an interview with CNBC's Property Play. "There is tremendous cloud computing growth."

AI has quickly become the dominant force behind demand for data center space, which is also used for cloud services, storage, enterprise IT and internet services. A report from McKinsey estimates that AI could account for about 70% of global data center capacity demand by 2030. The same report put the total capital needed to meet data center demand by that year at nearly $7 trillion.

The real estate slice of that spending is substantial. JLL, which provides data center real estate services worldwide, estimates the property portion alone could reach $3 trillion in investment over the next five years.

Power argued that the recent focus on AI has actually held back other parts of his business. "Frankly, from my business lens, my seat, I think those demand trends, which are massive drivers of our business, have been stifled in these days of AI," he said. He explained that hyperscale customers have been forced to choose between expanding their commercial cloud operations and handing capacity to AI labs.

Northern Virginia to Tokyo

Not every market feels the same pressure, Power said. Digital Realty operates in Northern Virginia, Dallas, Chicago, Singapore, Tokyo, Frankfurt and Amsterdam, where he said customers are fighting for the same limited space. "Our markets' demand has been outpacing supply now for several years. There's pent-up need for infrastructure in those markets. There's locational sensitivity. Those workloads can't choose any one of the 50 states," he said.

He also pointed to the company's international reach as a buffer. "We have a global company portfolio, so we've got data sovereignty and support in other countries as well," Power said.

Analysts largely agree that a slower release schedule for AI models would not immediately dent the physical demand for data centers. A change of pace would mainly affect the training of new models rather than their everyday use.

Inference over training

Andrew Batson, global head of data center research and strategy at JLL, said the bigger driver over the coming years is inference - the point at which businesses and individuals fold AI tools into their daily routines. "Only 1 in 4 Americans use AI daily, so even if models are slow to be released, there is significant runway for adoption to grow and data center demand to increase," he said.

Batson also noted that large institutional investors remain committed to the sector. He pointed to Blackstone, BlackRock and KKR, which he said "have high conviction in this space." Despite the negative headlines, he added, the underlying case "on paper, still looks quite strong."

For his part, Power said the stock market reaction would not change how Digital Realty runs its business. His message to shareholders, he said, is that the company has prepared for exactly this kind of turbulence. The most important thing, he added, is to make sure that daily swings in the share price do not shape the company's strategy.

Digital Realty, Equinix, data center REITs, Andrew Power, AI slowdown, data center real estate, cloud computing demand, JLL data center

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