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Private Investment in Data Centers Offers Opportunities In the Value Chain (and a look at Google)

Updated: May 23




As private investment in data centers increases, it drives growth and innovation throughout the entire value chain.


Private investors in North America are increasingly focusing on acquiring data centers, recognizing their potential for substantial returns. According to McKinsey, this focus may cause other investment opportunities within the sector's value chain to go unnoticed.


Case in point: From construction and infrastructure development to network management and data security, every stage benefits from new capital and technological advancements. This influx of investment improves the efficiency and capacity of data centers and creates numerous business opportunities for suppliers, contractors, and service providers within the data center ecosystem.


Rising Demand and Investor Attraction

The surge in demand for data centers has attracted investors across various categories, including growth capital, buyout, real estate, and infrastructure. McKinsey projects US data center power consumption will reach 35 gigawatts (GW) by 2030, up from 17 GW in 2022. This growth reflects the sector's lucrative potential.


Ownership and Operations



Data centers are typically owned and operated by large companies (e.g., AWS, Google Cloud, Microsoft, etc), banks, telecommunications companies, or colocation companies, which lease out space and provide necessary infrastructure while tenants supply their own IT equipment. Read Platocom's blog "Will We Ever Run Out of Cloud Storage" here.


Private Equity and Investment Trends

McKinsey writes that "private equity has significantly influenced data center investments. From 2019 to 2021, private equity buyers accounted for 65% of deal value, rising to over 90% in early 2022. Despite potential constraints from higher interest rates and competition, the sector still offers valuable opportunities, particularly in colocation services."


Unveiling Hidden Gems in the Data Center Value Chain

Investors can explore opportunities in various components of the data center value chain, including facilities, industrial equipment, IT hardware, and software. High demand and innovation in these areas present substantial investment potential.


Facility Development:

  • Construction and Real Estate: Investing in the construction of new data centers and the real estate they occupy.

  • Infrastructure Upgrades: Enhancing the physical infrastructure, such as power supply and cooling systems.


Industrial Equipment:

  • MEP Systems: Investing in mechanical, electrical, and plumbing systems crucial for data center operations.

  • Backup Power Systems: Developing advanced backup power solutions, like lithium-ion batteries or alternative energy sources.


IT Hardware:

  • Server and Storage Solutions: Supplying and maintaining servers, storage systems, and other critical IT hardware.

  • Networking Equipment: Investing in high-speed networking hardware to support increasing data traffic within and between data centers.


Software Solutions:

  • Data Center Management Software: Developing software for managing data center operations, monitoring performance, and ensuring security.

  • Virtualization and Cloud Services: Providing software solutions for virtualization and cloud-based services.


Data Center Operations:

  • Hosting and IaaS: Offering hosting services and infrastructure as a service to various enterprises.

  • Managed Services: Providing IT support, cybersecurity, and maintenance.


Energy Solutions:

  • Renewable Energy: Investing in renewable energy sources like wind, solar, and hydroelectric power.

  • Energy Storage: Developing advanced energy storage solutions for reliable power supply.

  • Cooling Technologies: Innovations in cooling technologies are essential to manage energy consumption and address challenges posed by global warming.




Investing in Sustainable Cooling Solutions Is The Future

Data centers are major energy consumers, prompting a shift towards sustainable energy practices. Companies like Apple, Google, and Meta aim for carbon neutrality, driving demand for renewable energy and advanced energy storage solutions.


A Look at Google



At Google, their goal is to achieve net-zero emissions across all of their operations and value chain by 2030:


"Our net-zero goal is supported by an ambitious clean energy goal to operate our offices and data centers on 24/7 carbon-free energy, such as solar and wind...When designing our data centers and offices, we consider options to reduce their carbon impacts, such as incorporation of low-GHG materials and adaptive reuse of existing buildings."

According to Google, they have worked to make Google’s data centers, which are the engine of the company, some of the most efficient in the world, improving their environmental performance even as demand for products like Gmail, Google Cloud, Search, and YouTube has dramatically risen. "We’ve done this by designing, building, and operating each one to maximize efficient use of energy, water, and materials."


Investing in sustainable energy and cooling solutions is crucial for the future of data centers all over the world. These innovations not only reduce environmental impact but also enhance efficiency and operational cost savings. By embracing renewable energy sources and advanced cooling technologies, data centers can meet growing demands while promoting sustainability and resilience.


On a Final Note

The growing demand for data centers presents numerous investment opportunities across the value chain. By considering the entire lifecycle of data centers and focusing on sustainable energy and cooling solutions, investors can uncover new avenues for growth and innovation.


By considering the entire lifecycle of data centers and focusing on sustainable energy and cooling solutions, investors can uncover new avenues for growth and innovation.

References:

  1. McKinsey & Company. "Data Centers in Demand: Understanding the Growth in Data Center Investments." Retrieved from McKinsey Website.

  2. McKinsey & Company. "The Data Center Value Chain: Opportunities for Investors." Retrieved from McKinsey Website.

  3. McKinsey & Company. "Investment Trends in the Data Center Sector." Retrieved from McKinsey Website.

  4. McKinsey & Company. "Data Center Investments: A Competitive Landscape." Retrieved from McKinsey Website.

  5. McKinsey & Company. "Exploring Data Center Growth and Sustainability." Retrieved from McKinsey Website.

  6. McKinsey & Company. "Renewable Energy Strategies for Data Centers." Retrieved from McKinsey Website.

  7. McKinsey & Company. "Amazon's Renewable Energy Investments in the UK." Retrieved from McKinsey Website.

  8. McKinsey & Company. "Renewable Energy and Data Centers: Challenges and Solutions." Retrieved from McKinsey Website.

  9. McKinsey & Company. "Advanced Cooling Technologies for Data Centers." Retrieved from McKinsey Website.

  10. McKinsey & Company. "Climate Change and Data Center Cooling." Retrieved from McKinsey Website.

  11. Google. "Net-Zero Carbon". Retrieved from Google's Website.



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