Why Arizona’s Data Center Boom Is About to Explode with AI Adoption

by Nick Law

In January, the tech world got a jolt when a Chinese AI startup, DeepSeek, unveiled a new large language model that reportedly operates at a much lower cost than its U.S. competitors. DeepSeek claims it spent only $5.6 million to train its AI, while OpenAI’s GPT-4 reportedly cost over $100 million. While some skeptics question DeepSeek’s figures, the undeniable reality is that the need for data centers is skyrocketing, driven by the ever-increasing demand for AI and other technologies.

Andrew Batson, Senior Director of Americas Data Center Research and Strategy at JLL, shared during a webinar that while AI gets a lot of attention, it’s just one piece of the broader data center puzzle. “As the cost of AI declines, usage will increase,” Batson noted, referring to the economic principle known as Jevons paradox, where cheaper resources lead to higher demand. He pointed out that, while AI adoption is growing, traditional data-driven needs—like internet traffic, enterprise computing, and storage—remain the dominant drivers of data center growth.

And the big players aren’t sitting idly by. Major tech companies such as Amazon, Microsoft, Google, and Meta have committed nearly $100 billion to build data centers in recent years. This enormous investment is helping support a global data center market that is expected to surpass $300 billion by 2026. According to Synergy Research Group, the total global spending on data center infrastructure has seen a compound annual growth rate (CAGR) of nearly 6% over the past five years.

Even with the AI hype, Batson emphasized that AI’s share of overall data center demand is still relatively small. The sheer volume of data being generated by the internet, enterprises, and new technologies remains the bigger driver. In fact, the data being produced globally is growing at an astonishing 23% annually. As for AI, it’s just one of many tech trends contributing to this data explosion.

The global “datasphere” is set to grow at a staggering pace. According to IDC, the global datasphere will reach 175 zettabytes by 2025, up from 59 zettabytes in 2020. The rise of technologies like AI, the Internet of Things (IoT), autonomous vehicles, and cloud computing are expected to consume more data than ever before.

By 2025, AI will account for about 20% of data center workloads, and by 2030, that figure could rise to 50% as AI becomes integrated into nearly every aspect of business and technology.

The Big Picture: AI and Data Centers Are Driving Arizona’s Economy

Arizona, especially the Greater Phoenix area, has become a key hotspot for data center development. Why? For starters, the region is appealing due to its low risk of natural disasters, affordable real estate, and proximity to tech hubs like Silicon Valley. This combination makes it an attractive location for companies looking to build out their digital infrastructure.

The demand for data centers in Greater Phoenix is sky-high, with the market consistently posting near-zero vacancy rates. A report from Colliers International reveals that Phoenix saw a record-breaking 460 megawatts of data center leasing activity in 2023. By the end of 2024, that number is projected to jump to 600 megawatts, with vacancy rates remaining below 5%.

This is a stark contrast to some other markets in the U.S., where leasing activity has been slower and vacancy rates higher. The low vacancy and fast-growing demand in Phoenix show just how important the region is becoming in the global data center ecosystem.

Arizona’s appeal is also reflected in its growing role in some of the largest data center projects in the country. For instance, a new $10 billion data center campus is being developed in Goodyear, which is expected to provide over 200 megawatts of capacity upon completion. It’s clear: Arizona is not just keeping up with the demand; it’s leading the charge.

AI and Water Use in Data Centers: A Growing Concern

Despite this boom, Arizona has faced criticism over water use, particularly with data centers known for their large water consumption. In a state where water is already a precious commodity, municipalities are starting to push back on new data center developments due to environmental concerns.

But the industry is evolving. Iron Mountain Data Centers has introduced new air-cooled technologies that drastically reduce water use. JD Beatty, Senior Manager of Site Selection for Iron Mountain, explained that these new facilities use a closed-loop system, making their water consumption comparable to other large industrial buildings. According to Beatty, “The newer data centers are significantly more water-efficient than those built just a few years ago.”

Arizona is actively addressing these concerns. Dan Diorio, Senior Director of State Policy at the Data Center Coalition, pointed out that each data center job has a multiplier effect: for every job directly created by a data center, another 6.5 jobs are supported elsewhere in the local economy. This includes jobs in construction, retail, and services. In 2023 alone, thedata center industry generated more than 88,000 jobs in Arizona, contributing $7.6 billion to the state’s labor income.

Looking Ahead: Arizona’s Role in the Future of AI Infrastructure

It’s not just about the number of jobs, either. Data centers are a massive contributor to Arizona’s economy. In 2023, the sector contributed $25.5 billion to the state’s GDP, with $2.1 billion in tax revenue. These numbers highlight just how integral data centers have become to the state’s economic health, and that’s without factoring in the long-term benefits that AI and emerging technologies will bring.

Looking ahead, Arizona’s data center industry will continue to grow as AI and other tech innovations demand more space, more power, and more storage. The state’s strategic location, business-friendly environment, and robust infrastructure make it a prime player in the global tech ecosystem. And with the rapid pace of AI adoption, Arizona is perfectly positioned to support the next generation of digital infrastructure.

As AI evolves and becomes more ingrained in everyday life, the demand for data storage and computing power will only increase. And Arizona will be there, powering the digital future one megawatt at a time.