Just How Big is the AI Buildout - and How Risky?
Published on 2026-09-27T23:34:00Z
A new Brookings Institution study notes the "strikingly physical" economic footprint of AI's buildout, from specialized chips and electricity to purpose-built data centers. (Two-thirds of a data center's costs are IT equipment, with one-third going to real estate and its associated power infrastructure.) "At an average of 3.63 percent of GDP per year, the projected buildout would be larger relative to the economy than the major U.S. canal, railroad, electrification, highway, and telecommunications investment booms." This is pushing up prices for workers, electricity, and even commercial real estate (as well as consumer products that use chips), notes the Wall Street Journal, and reducing the construction on new houses and apartment buildings. And in addition, the paper points out, projections for this buildout "would double the electricity consumption of the entire U.S. residential sector." The calculations come from Columbia Business School finance/real estate professor Stijn van Nieuwerburgh — and Reuters explains their significance: Just as the rail and telecoms expansions led to notable bubbles and busts, Van Nieuwerburgh wrote that the extent of the buildout, the still-untested revenue streams, and the intricate financing structure emerging around AI mean it could be primed for a fall. "This is freaking complicated," he said in a briefing with reporters of the arrangements emerging between AI firms, major tech hyperscalers, banks, private credit lenders, real estate firms, and a host of other players involved in building what he conservatively estimated at 183 gigawatts worth of new data-center capacity over the next seven years, compared with about 57 gigawatts currently installed.... The investment underway already has outstripped what the major players can fund from their own cash flows. The shift to outside financing has increased leverage, redistributed risks across the economy, and made the venture dependent on revenue streams that have yet to be proven, Van Nieuwerburgh noted in the paper, which will be presented on Friday... "These developments do not imply that financial distress is imminent. Strong growth in AI applications, high utilization, and continued improvements in model capability could support the projected infrastructure and generate stable cash flows," he wrote. "But the combination of uncertain demand, rapid technological change, execution bottlenecks, and high leverage creates meaningful downside risk if expectations are revised." As an example, he wrote that the AI industry will need to be earning about $3.7 trillion in annual revenue by 2032 to achieve the expected return on the investment, and "given current estimates of annual combined revenues of OpenAI and Anthropic of around $100 billion, revenues would need to grow at roughly 80% per year." The paper suggests policies that "improve measurement and transparency" for financing.
Published on 2026-09-27T23:34:00Z
A new Brookings Institution study notes the "strikingly physical" economic footprint of AI's buildout, from specialized chips and electricity to purpose-built data centers. (Two-thirds of a data center's costs are IT equipment, with one-third going to real estate and its associated power infrastructure.) "At an average of 3.63 percent of GDP per year, the projected buildout would be larger relative to the economy than the major U.S. canal, railroad, electrification, highway, and telecommunications investment booms." This is pushing up prices for workers, electricity, and even commercial real estate (as well as consumer products that use chips), notes the Wall Street Journal, and reducing the construction on new houses and apartment buildings. And in addition, the paper points out, projections for this buildout "would double the electricity consumption of the entire U.S. residential sector." The calculations come from Columbia Business School finance/real estate professor Stijn van Nieuwerburgh — and Reuters explains their significance: Just as the rail and telecoms expansions led to notable bubbles and busts, Van Nieuwerburgh wrote that the extent of the buildout, the still-untested revenue streams, and the intricate financing structure emerging around AI mean it could be primed for a fall. "This is freaking complicated," he said in a briefing with reporters of the arrangements emerging between AI firms, major tech hyperscalers, banks, private credit lenders, real estate firms, and a host of other players involved in building what he conservatively estimated at 183 gigawatts worth of new data-center capacity over the next seven years, compared with about 57 gigawatts currently installed.... The investment underway already has outstripped what the major players can fund from their own cash flows. The shift to outside financing has increased leverage, redistributed risks across the economy, and made the venture dependent on revenue streams that have yet to be proven, Van Nieuwerburgh noted in the paper, which will be presented on Friday... "These developments do not imply that financial distress is imminent. Strong growth in AI applications, high utilization, and continued improvements in model capability could support the projected infrastructure and generate stable cash flows," he wrote. "But the combination of uncertain demand, rapid technological change, execution bottlenecks, and high leverage creates meaningful downside risk if expectations are revised." As an example, he wrote that the AI industry will need to be earning about $3.7 trillion in annual revenue by 2032 to achieve the expected return on the investment, and "given current estimates of annual combined revenues of OpenAI and Anthropic of around $100 billion, revenues would need to grow at roughly 80% per year." The paper suggests policies that "improve measurement and transparency" for financing.
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