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Why there is no silver bullet for data center financing

Authors

  • Adam Blaylock

    EY Americas Financial Accounting Advisory Services (FAAS) TMT Industry and Technology Sector Leader

  • Gordon Bell

    Principal, Strategy and Execution, EY-Parthenon, Ernst & Young LLP

  • Ian Michelich

    Partner, EY-Parthenon, Ernst & Young LLP

  • Kevin Benenfeld

    Partner, Strategy and Transactions, Ernst & Young LLP

4 minute read 11 Mar 2025

The rush to build more — and more powerful — data centers requires companies to navigate a variety of complex financing issues.

In brief
  • Data centers are extremely capital intensive, and even the largest players are seeking alternative financing strategies.
  • Dealmaking is accelerating as companies seek to move in and out of assets for maximum gain.
  • While there are multiple options available, each comes with its own challenges. Aligning financing strategies with the company’s long-term vision is key.

Data center construction is experiencing double-digit growth in the US, a trend that is likely to continue until 2030 and beyond.1 Accompanying that growth is an increase in deal activity, as developers and hyperscalers — the major players who own and operate large-scale data facilities — vie to build out capital-intensive infrastructure.

How EY can help

This modern-day land rush will likely be accelerated further by President Donald Trump’s administration’s plan to attract as much as $500 billion in artificial intelligence (AI) investment over the next four years. A key element in this plan is an ambitious joint venture between technology firms, called The Stargate Project, which has already begun constructing facilities in Texas. The administration also pledged to streamline or eliminate regulations to spur investment.

 

That focus on expediting development is critical because the capital requirements for a single data center today can run in the billions. This is sparking interest in deals as developers seek to exit existing investments to fund new ones or raise capital in other ways. Even the largest, most cash-rich hyperscalers are seeking alternative financing structures due to cost.

 

While there are multiple financing options available — including both private and public capital solutions — they all have different benefits and downsides. There is no “silver bullet” that works well for everyone.

 

For example, many data center developers and operators have been taken private in recent years, but there is growing awareness that public markets will need to be involved in funding future development, especially in concert with sovereign funds or infrastructure funds, to meet capital needs and spread risk.

 

In short, the landscape is rapidly evolving, and companies seeking capital are wise to take a strategic look at funding and investment strategies to ensure they are maximizing their own position. For many players, a hybrid approach might be necessary, taking the best of several options and minimizing the risks.

Financing options: pros and cons

Companies in the data center space have a variety of financial options available to them, each with unique benefits and challenges.

YieldCo/DevCo, which recycles capital through the sale of stabilized (leased) assets — build one, sell one and repeat.

Public funding/IPO

Private funding

Joint ventures 

Aligning vision with strategy

It’s essential for decision-makers to ask the following key questions when choosing a capital strategy:

  1. What do we want the company to look like in 10 years? And what do we do today to get there?
  2. Are we a developer, an operator or a customer?
  3. How much control do we want to have over our projects?

The scale of today’s data centers means there aren’t many single buyers for these businesses, nor is there a single funding strategy. In addition, each strategy has unique and impactful expense and tax implications that must be sorted out. Defining how your company will participate in the marketplace — based on the company’s unique strengths and vision — can make a significant difference in the success of your projects. 


Summary 

The US data center sector is witnessing substantial growth, anticipated to persist until 2030. This expansion is driven by heightened activity among developers and hyperscalers, alongside government efforts to secure $500 billion in AI investments through new initiatives. With steep capital requirements, firms are considering diverse funding avenues, including both private and public sources. As the market evolves, companies can strategically evaluate their financing approaches, often adopting a hybrid approach to enhance capital efficiency and reduce potential risks.

About this article

Authors

  • Adam Blaylock
    EY Americas Financial Accounting Advisory Services (FAAS) TMT Industry and Technology Sector Leader
  • Gordon Bell
    Principal, Strategy and Execution, EY-Parthenon, Ernst & Young LLP
  • Ian Michelich
    Partner, EY-Parthenon, Ernst & Young LLP
  • Kevin Benenfeld
    Partner, Strategy and Transactions, Ernst & Young LLP
Related topics
AI
Emerging technology

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