Data centers have emerged as the backbone of modern digital infrastructure, serving as physical hubs where essential computing resources and IT and security systems converge to store, process, and secure critical data. With the rise of cloud services, generative artificial intelligence (AI) and other digitally enabled solutions, we are seeing a race to invest in and build additional data centers and capacity to support the exponential growth in data, user experience platforms, and cloud services. The construction and operation of data center facilities requires power, water, cooling, connectivity, and other critical resources and systems of proportions not available today, all of which require significant investment and growth.
The growing demand for data centers is prompting significant regulatory, operational, and infrastructure developments in the United States, with recent federal initiatives and investments underscoring this growing momentum. In his final days in office, former President Biden issued the Executive Order on Advancing United States Leadership in Artificial Intelligence Infrastructure, furthering the federal government’s focus on accelerating AI infrastructure by prioritizing the identification of federal lands for “frontier” AI data centers and expediting permitting for essential energy infrastructure. Developers selected to build these facilities must meet stringent requirements, such as integrating low or zero-carbon energy resources to power the data centers. While this executive order may be rescinded by the new administration, these measures reflect the increasing importance of aligning data center growth with sustainability and national security goals.
The Trump-Vance administration also indicated support for data center expansion, with President-elect Trump announcing a $20 billion investment by Damac Properties to build facilities across multiple US states in early January prior to his inauguration. The announcement not only emphasized the need for robust site staging and energy planning, but also highlighted the vital role of connectivity in ensuring operational reliability.
Both federal initiatives and private investments illustrate the critical intersections of policy, energy, and connectivity that are driving the future of data centers. As the industry expands, stakeholders will need to carefully navigate compliance considerations, evolving regulations, and international trade complexities to support innovation while addressing environmental and operational challenges.
The rapid growth of data centers has been driven by a convergence of transformative factors, reshaping how organizations manage and process data. A significant driver is the widespread migration from on-premises data centers to alternative solutions, including colocation and hyperscale facilities. These models offer businesses greater flexibility to scale operations, without the burden of owning and maintaining physical infrastructure.
AI has also emerged as a pivotal force behind this surge, generating unprecedented demand for data processing capacity. The complexity of AI models, particularly as they grow and evolve, requires immense computational power and infrastructure. Early AI models only required a fraction of the resources demanded by today’s cutting-edge systems. Advancements in AI have driven exponential increases in processing needs, fueled by the growing use of high-resolution video, advanced voice recognition, and intricate algorithmic computations. As a result, data centers must continuously innovate, integrating more powerful servers and advanced cooling systems to meet these escalating requirements.
The broader adoption of digital solutions, from enhancing customer experiences to optimizing business operations, accelerated during and after the COVID-19 pandemic, has further contributed to the explosion of data.
In tandem with these trends, the revenue growth of hyperscale cloud providers highlights the scaling demand for data center capacity. The ecosystem supporting these facilities, including servers, cooling systems, and other infrastructure, is also expanding to meet the specialized requirements of AI-driven workloads.
Investing in, building, and operating data centers involves navigating a wide range of legal considerations that span multiple disciplines, from real estate, environmental, and energy procurement to international trade.
Among the most pressing concerns in data center development are securing the financing for the build and identifying suitable locations. Siting, permitting, and construction require meticulous attention to land acquisition, zoning, and regulatory compliance. Developers must also evaluate tax incentives, as certain jurisdictions offer sales and use tax exemptions for data center equipment and energy consumption, while others may not.
Energy and water availability are critical factors, particularly given the significant power and cooling needs of these facilities.
Connectivity also plays a central role in data center functionality. Operators must secure fiber optic networks to ensure reliable data transfer, including redundant routes for resilience. This extends to negotiating fiber rights for local, long-haul, and submarine connections, which enable seamless data replication across global facilities.
There are also challenges tied to trade regulations, such as importing equipment and complying with export controls on advanced technologies like graphics processing units (GPUs) and caps on data processing in foreign jurisdictions.
In addition, security and compliance are crucial. Physical security measures must be complemented by rigorous cybersecurity protocols to safeguard all sensitive data. National security laws, including those addressing supply chain risks, and international data privacy regulations, such as the EU’s General Data Protection Regulation (GDPR), impose even more security obligations. Moreover, specific rules, such as the EU’s Digital Operational Resilience Act (DORA) framework for financial information and communications technology providers, may also apply to certain operators.
Within the increasingly complex legal and regulatory landscape, data centers will need to require tailored guidance to address challenges in areas such as site selection, energy procurement, compliance, and connectivity. Those businesses owning and operating data centers, partnering with them, or exploring partnerships with them will need to be mindful of evolving privacy regulations, cross-border data transfers, and sustainability concerns—while ensuring operational resiliency, compliance with applicable state and federal regulations, and risk mitigation and should consult counsel as needed.