Data Center Market Faces Power Demand and Regulatory Tension

Industry experts report a growing tension in the data center market between insatiable power demand and increasing regulatory uncertainty. Melissa Kalka of Kirkland & Ellis and Pankaj Tripathi of McKinsey & Company note that local ballot measures and permitting challenges have caused a temporary pause in some deal activities.

Tripathi warns that these delays could impact capacity scheduled for 2027 and 2028, which may lead to pricing pressures in a supply-constrained market. Despite these rising costs, experts agree that speed to market currently outweighs price sensitivity for hyperscalers.

Investment firms are responding to these risks by adopting more defensive lending postures. Apollo Global Management has reported record lending for AI data centers but is becoming more discerning regarding contract duration and counterparty credit quality to prevent value leakage.