J.P. Morgan’s Outlook on Data Centers’ Economic Impact

By Siddarth S

(Reuters) – J.P. Morgan estimated that spending on data centers could contribute between 10-20 basis points to U.S. economic growth in 2025-2026 as technology companies race to benefit from the artificial intelligence boom.

Investments in data centers, which provide computing power for AI, have surged since OpenAI launched ChatGPT in 2022. Companies across sectors are increasingly shifting operations to the cloud and integrating AI into their offerings.

Mega-cap cloud companies, including Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL), have been heavily investing in AI-related ventures.

The boost to gross domestic product (GDP) could primarily arise from demand for data center construction, technology equipment investment, and additional power generation and transmission infrastructure, according to a note from J.P. Morgan dated Wednesday.

J.P. Morgan estimates that spending on data centers likely contributed between 0.1%-0.3% to GDP growth in 2024.

While the brokerage’s estimates exclude costs for new power generation, it projected that each 5-10 gigawatt increase in capacity could require $20 billion in spending, representing 7 basis points of GDP.

U.S. power consumption is expected to peak in 2025 and 2026, as stated in the government’s Energy Information Administration Short Term Energy Outlook (STEO) released on Tuesday.

Support from the political sphere is also evident; President Joe Biden signed an executive order on Tuesday to provide federal support to address the substantial energy needs of rapidly growing advanced AI data centers.

According to J.P. Morgan, “The data center boom will likely continue for at least a couple more years, given ongoing advancements in AI innovation and its potential to deliver a positive economic impact.”

However, the brokerage cautioned, “Whether that growth can sustain into the latter half of the decade will depend, similar to the telecom boom, on whether the expected returns on these investments are realized.”