How Backlash Against Data Centers Could Start Showing Up in Hyperscalers' Earnings Reports
Key Points
Public sentiment against data centers is growing as people come to understand how they impact the communities near them.
Repealing tax incentives for data centers would result in higher costs for companies.
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Ohio has become one of the hottest destinations for hyperscalers looking to build data centers. Because of the state's relatively low land prices, existing facilities, and generous tax breaks, it has looked like a great fit for companies such as Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and Meta Platforms (NASDAQ: META) that want to continue rapidly building artificial intelligence (AI) infrastructure.
However, the tides are turning and moods are souring as legislators in the once-welcoming state aim to close the door on new data centers. Ohio could be the canary in the coal mine; investors should expect other states to follow suit in removing their welcome mats. The implications will undoubtedly affect earnings and the growth trajectory of AI in the U.S.
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The backlash against hyperscalers and their data centers is intensifying for several reasons. Residents living near them complain of noise pollution, strain on local water and electricity supplies, and the disappointingly low numbers of permanent jobs being added to their local economies. The concerns are real, and communities, regulators, and politicians are pushing back against the facilities with growing fervor, according to multiple reports.
Image source: Getty Images.
Many Ohio legislators are now hoping to remove the tax incentives the state had been offering to hyperscalers. The loss of those public subsidies for this private infrastructure would result in higher construction and operating costs, thus cutting into company margins. Delays in data center construction and the cancellation of projects will also slow AI growth for many companies. This will have ripple effects from hyperscalers down through every partner and vendor.
This is a trend that could easily pick up steam. For data center operators, finding places to build new facilities is likely to become more difficult and more expensive.
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Catie Hogan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.
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