Equinix expects its smaller data centers to face less exposure to potential US construction restrictions as political and regulatory scrutiny intensifies over the rapid expansion of artificial intelligence infrastructure.
The company’s facilities typically have capacities of between 30 and 60 megawatts, below the roughly 100-megawatt threshold that Equinix Asia-Pacific President Cyrus Adaggra said is generally targeted by proposed US regulations.
The distinction could give the company greater flexibility to expand in markets where demand for digital infrastructure remains strong, even as policymakers consider tighter controls on large data center developments.
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“We will invest in markets where we see customer demand, and because we have a footprint that is typically less than 100 megawatts, we tend not to fall and be caught by the legislation or the regulation, which is typically at about 100 megawatts in the U.S.,” Adaggra told CNBC’s “Squawk Box Asia.”
His comments come as the outcome of the US midterm elections has raised concerns that increased political opposition to data center construction could delay projects, increase costs and disrupt investment plans across the AI infrastructure industry.
The issue has become more significant as electricity consumption, water requirements and pressure on local infrastructure attract greater attention from regulators and communities hosting large computing facilities.
A Wednesday report by BMI, a Fitch Solutions company, estimated that approximately 53% of projected growth in the US hyperscaler development pipeline is concentrated in states where newly elected governors could impose restrictions on data center construction.
BMI said the effects would probably become more visible from 2028 because most projects scheduled for 2027 have already been committed. This suggests that regulatory changes may not immediately derail current construction activity but could influence the next phase of capacity expansion.
Customer Demand Drives Equinix’s $7 Billion Spending
Equinix has significantly increased its capital expenditure as businesses seek more computing capacity, connectivity and cloud infrastructure to support digital operations and AI adoption.
Adaggra said the company’s annual capital spending had risen from approximately $2 billion a few years ago to $7 billion, with customer demand remaining the main factor determining how much it invests.
“The number one determinant of our capex spend and build is customer demand,” he said.
The company’s annualized gross bookings exceeded $500 million for the first time in the third quarter, representing a 35% increase from the same period a year earlier.
Adaggra attributed the growth to demand from large enterprises, including Fortune 500 companies, which are expanding their use of hybrid and multi-cloud infrastructure, network connectivity, and access to digital services.
Equinix serves approximately 60% of Fortune 500 companies, according to Adaggra.
The company’s position in the market gives it exposure to businesses that need to connect multiple cloud providers, corporate networks, and digital platforms. These requirements are becoming more important as organizations distribute workloads across different environments rather than relying on a single cloud provider or centralized infrastructure.
Equinix’s smaller facility model could offer an advantage if restrictions focus on developments above certain capacity thresholds. However, the company’s exposure will still depend on the specific wording of regulations, local permitting rules and whether smaller facilities face indirect constraints through electricity availability, grid connections or other infrastructure requirements.
Potential restrictions could also affect companies beyond data center operators. Russell Investments warned that slower US construction could weaken demand for semiconductors and other infrastructure equipment, including products supplied by Asian manufacturers.
The risk extends across the AI supply chain because data center construction supports demand for processors, networking equipment, cooling systems and power infrastructure. Delays to major projects could therefore affect suppliers even if demand for AI services continues to grow.
Asia As Alternative Destination for Data Center Investment
As uncertainty grows around US development, Asia is attracting greater attention from global technology companies and infrastructure investors.
“After the U.S., we expect actually most data center investments and activity to happen in Asia,” Sjoerd Leenart, chief executive of JPMorgan’s banking business in Asia Pacific, said in a podcast released on Friday.
Leenart said global hyperscalers were looking for Asian markets with sufficient land, electricity supplies and grid capacity to support large-scale data center developments.
The region’s appeal is also creating opportunities for countries seeking to attract investment in digital infrastructure.
A Thursday report by Mirae Asset Securities identified South Korea as a potential destination for additional data center capacity in Asia. The brokerage said operators able to secure power, land and long-term customer contracts would be better positioned to expand.
The emphasis on electricity and land points to the constraints that could determine where the next wave of investment takes place. Access to financing and advanced equipment may be insufficient if developers cannot secure dependable power supplies or connect facilities to the electricity grid.
Asia faces many of the same challenges confronting the US. A Thursday report by risk advisory and insurance brokerage WTW identified power availability, grid connectivity and equipment delays as continuing obstacles to data center development across the region.
Leenart also cited regulatory resistance in Thailand and Australia, where authorities had paused some projects to assess how rising data center electricity demand could affect other industries and consumers.
The developments are indicating that moving investment away from the US will not automatically eliminate the regulatory and infrastructure risks facing the industry. Governments across Asia are also weighing the economic benefits of attracting data center investment against the demands large facilities place on electricity systems and other resources.
Smaller facilities may provide some protection from regulations aimed at the largest developments, while Equinix’s customer-driven investment model offers flexibility in deciding where to build. The wider industry, however, will remain dependent on access to electricity, land and regulatory approval.