Business
What’s the big deal about AI data centres?
Michael DempseyTechnology Reporter
Getty ImagesIt’s such a big number that it’s hard to imagine. Worldwide, around $3tn (£2.2tn) will be spent on data centres that support AI between now and 2029.
That estimate comes from the investment bank Morgan Stanley, which adds that roughly half of that sum will go on construction costs, and half on the pricey hardware supporting the AI revolution.
To put that number into perspective, that’s roughly what the entire French economy was worth in 2024.
In the UK alone, it’s estimated that another 100 data centres will be built over the next few years to meet the demand for AI processing.
Some of those will be built for Microsoft which earlier this month announced $30bn (£22bn) investment in the UK’s AI sector.
Just what is it about AI data centres that’s different from the traditional building containing ranks of computer servers that keeps our personal photos, social media accounts and work applications humming away?
And are they worth this terrific spending spree?
Data centres have been growing in size for years. A new term, hyperscale, was coined by the tech industry to describe sites where the power requirement runs into tens of megawatts, before gigawatts, a thousand times bigger than megawatts, came on the scene.
But AI has supercharged this game. Most AI models rely on expensive computer chips from Nvidia to process tasks.
Nvidia chips come in large cabinets costing around $4m each. And these cabinets hold the key to why AI data centres are different.
The Large Language Models (LLMs) that train up AI software have to break language into every possible tiny element of meaning. That is only possible with a network of computers working in unison and in extremely close proximity.
Why is proximity so important? Every metre of distance between two chips adds a nanosecond, one billionth of a second, to the processing time.
It might not sound like much time, but when a warehouse full of computers is whirring away these microscopic delays pile up and dilute the performance needed for AI.
The AI processing cabinets are jammed in together to eliminate this element of latency and create what the tech sector calls parallel processing, operating as one enormous computer. It all spells out density, a magic word in AI construction circles.
Density eliminates the processing bottlenecks that regular data centres see from working with processors sitting several metres apart.
Bloomberg via Getty ImagesHowever, those dense ranks of cabinets eat up gigawatts of power and LLM training produces spikes in that appetite for electricity.
These spikes are equivalent to thousands of homes switching kettles on and off in unison every few seconds.
This type of irregular demand on a local grid needs to be carefully managed.
Daniel Bizo of data centre engineering consultancy The Uptime Institute analyses data centres for a living.
“Normal data centres are a steady hum in the background compared to the demand an AI workload makes on the grid.”
Just like those synchronised kettles sudden AI surges present what Mr Bizo calls a singluar problem.
“The singular workload at this scale is unheard of,” says Mr Bizo, “it’s such an extreme engineering challenge, it’s like the Apollo programme.”
Data centre operators are getting around the energy problem in various ways.
Speaking to the BBC earlier this month, Nvidia CEO Jensen Huang said that in the UK in the short term he was hoping that more gas turbines could be used “off the grid so we don’t burden people on the grid”.
He said AI itself would design better gas turbines, solar panels, wind turbines and fusion energy to produce more cost effective sustainable energy.
Microsoft is investing billions of dollars in energy projects, including a deal with Constellation Energy that will see nuclear power produced again on Three Mile Island.
Google, owned by Alphabet, is also investing in nuclear power as part of a strategy to run on carbon-free energy by 2030.
Meanwhile Amazon Web Services (AWS), which is part of the retail giant Amazon, says it is already the single largest corporate buyer of renewable energy in the world.
Bloomberg via Getty ImagesThe data centre industry is acutely aware that legislators are keeping an eye on the downsides of AI factories with their intense energy use having a potential impact on local infrastructure and the environment.
One of these environmental impacts includes a hefty supply of water to cool toiling chips.
In the US state of Virginia, home to an expanding population of data centres that keep tech giants like Amazon and Google in business, a bill tying approval of new sites to water consumption figures is under consideration.
Meanwhile a proposed AI factory in northern Lincolnshire in the UK has run into objections from Anglian Water, which is responsible for keeping taps on in the area of the proposed site.
Anglian Water points out that it is not obliged to supply water for non-domestic use and suggests recycled water from the final stage of effluent treatment as a coolant rather than drinking water.
Given the practical problems and enormous costs AI data centres face, is the whole movement really one big bubble?
One speaker at recent data centre conference coined the term “bragawatts” to describe how the industry is talking up the scale of proposed AI sites.
Zahl Limbuwala is a data centre specialist at tech investment advisors DTCP. He acknowledges big questions around the future of AI data centre spending.
“The current trajectory is very difficult to believe. There has certainly been a lot of bragging going on. But investment has to deliver a return or the market will correct itself.”
Bearing these cautions in mind, he still believes AI merits a special place in investment terms. “AI will have more impact than previous technologies, including the internet. So it’s feasible we’ll need all those gigawatts.”
He notes that bragging apart, AI data centres “are the real estate of the tech world.” Speculative tech bubbles such as the dotcom boom of the 1990s lacked a bricks and mortar base. AI data centres are very solid. But the spending boom behind them cannot last forever.
Indians sharply cut back on overseas travel spending in March, with remittances for foreign trips dropping by more than $212 million from the previous month, according to Reserve Bank of India data. The fall in outbound travel expenditure came amid rising oil prices linked to the Middle East conflict and persistent pressure on rupee, even as travel remained the single largest component of outward remittances under the Liberalised Remittance Scheme (LRS).In March, travel-related remittances fell to $1.09 billion from $1.3 billion in February and $1.65 billion in January. The decline came at a time when the West Asia conflict pushed oil prices higher and weakened rupee to record lows. Amid the situation, Prime Minister Narendra Modi urged citizens to cut down on foreign travel and adopt measures such as carpooling. Lower overseas travel spending could reduce foreign exchange outflows and help ease pressure on rupee.According to the RBI’s data on outward remittances by resident individuals, travel continued to account for the largest share of money sent abroad under the LRS in March. Total remittances during the month stood at $2.59 billion.The RBI tracks overseas spending across categories including travel, studies abroad, maintenance of close relatives, overseas investments, and property purchases. Under the LRS framework, resident individuals, including minors, can remit up to $250,000 in a financial year for permitted current or capital account transactions.Within the travel segment, the biggest component remained the ‘other travel’ category, which covers holiday spending and international credit card settlements. Indians spent $623.05 million under this category in March, accounting for nearly 57 per cent of total travel-related remittances during the month.Expenditure linked to education travel, including hostel and fee payments, stood at $450.16 million. Business travel, pilgrimage, and overseas medical treatment together accounted for $21.39 million.The data also showed a rise in remittances meant for the maintenance of close relatives abroad. Such transfers increased to $389.78 million in March from $266.18 million in February.At the same time, spending under the ‘studies abroad’ category declined. This category includes payments made for educational services accessed remotely without travelling overseas, such as correspondence courses. Remittances under this head stood at $151.71 million in March, compared to $175.68 million in February and $267.42 million in January.For the financial year 2024-25, Indians remitted a total of $29.56 billion under the LRS. Travel made up the largest portion of this amount at $16.96 billion.The RBI figures further showed that investments by Indians in overseas equity and debt instruments rose significantly to $440.22 million in March from $265.99 million in February.Meanwhile, outward remittances for the purchase of immovable property overseas declined to $38.68 million in March, down from $51.36 million a month earlier.
Business
Stock market this week: Middle East tensions, oil prices, FII flows & more — what will guide Dalal Street
Dalal Street is heading into the new trading week with global uncertainty firmly in focus, as investors keep a close watch on the evolving situation in the Middle East, fluctuations in crude oil prices and the behaviour of foreign investors. Analysts said that sentiment is likely to remain fragile and heavily influenced by developments in negotiations between the United States and Iran, while movements in the rupee, global equities and the US dollar are also expected to shape market direction in the days ahead.Trading activity during the week is also expected to be shaped by the rupee’s movement against the US dollar, while investors continue to assess the impact of global uncertainty on risk appetite. Markets will remain closed on Thursday for Bakri Id.A key trigger for sentiment emerged over the weekend after US Secretary of State Marco Rubio said negotiations between Washington and Tehran had shown some progress, raising expectations that the ongoing conflict in West Asia could move closer to resolution.Ajit Mishra, SVP, Research at Religare Broking Ltd, said investors would closely track developments tied to crude oil, global currencies and bond markets. “This week is expected to remain highly sensitive to global macroeconomic developments and currency movements. Investors will also monitor crude oil prices, developments in US-Iran negotiations, and the trajectory of the US dollar and bond yields, all of which are expected to influence foreign flows and overall risk appetite,” he said.Apart from geopolitical developments, the Reserve Bank’s decision to transfer a record Rs 2.87 lakh crore dividend to the government for the year ended March 2026 is also expected to remain in focus. The announcement comes at a time when rising import costs and supply chain pressures linked to the West Asia conflict continue to weigh on the economy.According to Mishra, market participants are expected to evaluate how the RBI payout could affect liquidity conditions, fiscal flexibility and government spending in the months ahead.Ponmudi R, CEO of Enrich Money, said market behaviour in the coming sessions is expected to remain sensitive to fresh headlines surrounding diplomatic negotiations and oil prices. “Markets are expected to remain volatile and heavily headline-driven in the coming week, with investor attention firmly focused on developments surrounding the US–Iran situation, broader diplomatic negotiations and movements in crude oil prices,” he said.“While hopes of a diplomatic breakthrough and easing geopolitical tensions have improved sentiment modestly, investors continue to remain cautious as uncertainty surrounding the final outcome of the negotiations remains elevated,” Ponmudi added.He further said investors are expected to watch institutional flows, global equity trends, macroeconomic indicators and the rupee for further market cues. “With global uncertainty still elevated, market participants are likely to remain selective and cautious despite the recent improvement in sentiment,” he said.Vinod Nair, Head of Research at Geojit Investments Limited, said markets would require stronger support factors to build a more constructive setup. According to him, a meaningful decline in crude oil prices, steady foreign institutional investor flows and stable Q1FY27 earnings expectations without major downgrades would be important for sustained momentum.In the previous week, the BSE benchmark index rose 177.36 points, or 0.23%, while the NSE Nifty advanced 75.8 points, or 0.32%.
Reforms are needed of the welfare system to tackle the high numbers of young people not in work or education, says Alan Milburn.
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