UAE investment in data centres may be overly optimistic

• ‘Concern’ over long-term leases
• Speed to market is vital
• Needs can change with tech

Billions of dollars of planned Gulf investment in data centres, announced with fanfare during President Donald Trump’s regional May visit, may be at more risk than immediately meets the eye, according to US financial services company Moody’s Corp.

After the headlines, projects like the 10 square-mile artificial intelligence Stargate campus planned for Abu Dhabi are a leap into the unknown.

These hyperscale data centres, which are concentrations of computational power used to carry out intensive tasks like training AI, use just 30 percent of their allocated power globally, says John Medina, vice president for global project and infrastructure finance at Moody’s Investors Service.

Hyperscale data centres are so large that developers usually sign up a hyperscaler such as Microsoft or Amazon to rent the facility before construction starts.

“Our biggest concern is that most of these hyperscale contracts have a very long initial term,” Medina tells AGBI.

“I don’t know what’s going to happen in 15 years,” says Medina of the lease terms for hyperscale facilities, which typically last 10 to 15 years.

For the UAE, the priority for success in developing hyperscale data centres is speed.

“It’s all about speed to market. It takes four to five years to build a data centre,” says Medina. “If you can build [it] in three, that’s very valuable.”

While OpenAI appears to have committed to buying one gigawatt (GW) of computing power for the Stargate UAE project, it is not clear if the remainder of the planned 5GW capacity has rental agreements in place.

Even where there is agreement, it may only last one term or it may be leased by companies without the credit rating usually desired for a long and expensive project, says Medina.

“[Hyperscalers] themselves are saying they may not renew,” Medina says. “Technology changes. It might become more efficient. They might not need as much power.”

The UAE may import around 500,000 advanced chips from the US annually, so the chance of them becoming prematurely obsolete or underutilised represents a significant financial risk.

Nor is the problem theoretical.

New data centres in China are reportedly sitting empty as computing demand has not lived up to the country’s investment in the sector. 

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Roughly 80 percent of China’s newly built computing resources are unused, according to MIT Technology Review, citing local media.

That means fire sales of Nvidia chips, and graphics processing unit (GPU) rental prices in China are dropping.

A GPU is a specialised electronic circuit designed to rapidly process and render images, video and animations. 

Many data centre projects may not be finished at all, according to research shared with AGBI by data centre specialist think tank Uptime Institute.

Only half of the 122 proposals for new data centres made last year have a 50 percent or more chance of being built, Uptime Institute predicts.

Pressure on power grids, unproven alternative energy sources such as nuclear power and long development lead times all present a risk, it says.

“Much of this digital infrastructure will either not be built, will be scaled down, or else built over a longer time period than current reports suggest,” according to New Yor-based Uptime.