The US and China are building vast data centres, and middle powers like the UK have ambitious plans. But there are mounting concerns regarding environmental impact and a financial bubble.

From the air, the world’s largest data centre looks like an oversized circuit board dominating the windswept plains of Inner Mongolia. Inside, 50,000 China Telecom servers run around the clock, fuelling Asia’s digital revolution. The $3bn facility serves high-profile, national clients including Alibaba, Baidu and Tencent on a campus covering 10.7 million square feet.

The project is one of a growing number of so-called hyper-scale data centres – immense facilities housing thousands of servers on which today’s burgeoning AI industry depends. And, since US companies dominate AI, it should come as no surprise that states such as Virginia and former Gold Rush-era towns in the arid Nevada desert are fast becoming data centre powerhouses too.

This building frenzy accelerated rapidly during 2025 as companies competed to create the infrastructure required by the rapid expansion of AI. But, what some have called the fourth industrial revolution does not come cheap. The consultancy McKinsey & Company calculates that by 2030, global spend on computing hardware investments connected to data centres will top $4tn. Roughly $3tn more will go into land acquisition, buildings, wiring and labour costs.

There’s talk of a financial bubble as investors pile into a technology that has yet to fully prove itself. In January, writer John Plender compared the situation not only to the ‘dot com’ boom at the turn of the 21st century, but to Victorian railway mania in the 19th century – which left the UK with a modern transport infrastructure, but with most investors ruined.

One reason for these concerns is that technology companies must borrow at unprecedented levels to fund their data centre strategies. For example, major cloud infrastructure providers issued about $121bn in debt in 2025, according to the investment house Mellon. That figure could leap to $1.5tn in the next few years, if the calculations of Morgan Stanley and JPMorgan are correct. So, even if this is not a bubble, disappointing investment returns would hit global economies hard.

The UK’s precarious path

The UK government says that ‘in a world where AI will underpin our economy, onshore data centre capability is essential for protecting sensitive data, maximising adoption benefits, and ensuring resilience from global shocks’. It therefore has significant ambitions in this area.

However, both the UK and the EU lag behind the US and China significantly. Virginia alone has five times more capacity in its data centres than Europe’s five core markets combined, and its development pipeline is three times fuller, according to research by financial institution ING published in late 2025.

Since over 75 per cent of water used by data centres is suitable for drinking, the rise of climate-related drought conditions in Europe is an additional issue.

On the plus side, 2025 was the UK’s best year to-date in terms of the amount of electricity produced by renewable energy. In addition, plans to create what’s described as ‘the biggest artificial intelligence data centre in Western Europe’ on a brownfield site in Northumberland, England, have been given the green light. Built on the rubble of an old power station to minimise its environmental impact, the £10bn investment will use a closed-loop cooling system. Google’s £5bn facility at Waltham Cross, meanwhile, is air-cooled and ‘heat from the data centre can be re-routed and provided free of charge to help warm local homes, schools or businesses,’ according to the company. Google UK claims its energy strategy means the company’s operations will function at or near 95 per cent carbon-free energy in 2026.

While money must be invested into the National Grid to ensure it can deal with such projects, these initiatives suggest it may be possible to build sites that have less of an environmental impact.

The UK government is also trying to position itself as a gateway between the US and Europe. That means satisfying the EU’s regulators. To that end, in autumn 2024, the UK government designated data centres as critical national infrastructure, mirroring similar provisions in EU law. It means data centres now face greater regulatory oversight and must comply with additional security requirements. They will also have access to government support during emergencies.

In addition, the UK government is planning to boost cybersecurity measures to ensure they’re fit for purpose and capture the main requirements of similar EU laws, such as the bloc’s network and information security directive. A bill currently before the UK’s Parliament would bring the country’s data centres into scope of these new cyber requirements. In future, EU businesses should have confidence that they can safely use any UK data centre, especially as the European Commission has also renewed its adequacy decision allowing the free flow of personal data with the country.

The ‘mercurial character’

Despite the considerable challenges, the UK’s relatively attractive regulatory environment and moves to reduce the environmental impact of data centres could well see it achieve its strategy to become a digital hub connecting the US and Europe.

But, yet another potential complicating factor is the mercurial character of the current US President, Donald Trump. During a state visit in September, UK Prime Minister Sir Keir Starmer and President Trump signed a memorandum of understanding titled the ‘Technology Prosperity Deal’. The US administration has deep ties with the heads of the largest American technology giants, which makes the deal subject to political volatility. While not directly dependent on the agreement being ratified, some of the huge investment plans announced by major US companies may not proceed if the political winds change direction.

In fact, just three months later, it was reported that the deal was on hold. The sticking points include the UK’s two per cent digital services tax on US companies that the Trump administration wants to see scrapped, as well as online safety rules and food safety regulations. Negotiations are ongoing, but they will probably mean concessions from the UK government. The risk is that if it concedes too much, the government could break its current alignment with the EU’s regulatory approach. If it gives too little, it may not capture the potentially huge levels of investment on offer. If things go wrong, a strategy that has been touted as building a digital bridge between the US and Europe could instead leave the UK struggling to realise its AI ambitions.

Arthur Piper is a freelance journalist. He can be contacted at arthur@sdw.co.uk