BofA cuts to the chase on AI data center demand
A Bank of America report indicates strong demand for AI data center infrastructure but highlights increased risks from permit delays and local opposition, particularly in regions like Loudoun County, Virginia. Data center suppliers continue to see robust order books, but project delays due to community pushback and proposed moratoriums could impact revenue conversion. Developers are increasingly making public commitments to address concerns about resource use and grid impact.
A recent report from Bank of America's industrials team, following a Washington data center conference, indicates sustained strong demand for AI data center infrastructure from hyperscalers like Microsoft, Amazon, Google, and Meta. Despite this, the report by analyst Andrew Obin and his team highlights a significant and increasing risk: permit delays and local community opposition are making it harder to convert approved orders into completed facilities.
Obin's team reiterated "Buy" ratings on key industrial suppliers exposed to AI capital spending, including Eaton, GE Vernova, Vertiv, Trane Technologies, Johnson Controls, Forgent Power Solutions, and INNIO, which supply essential electrical, thermal, and generation equipment. The analysts confirmed that demand remains robust and "speed to market" is the primary determinant of success, while also dispelling quality concerns previously leveled against Vertiv.
The BofA report specifically noted that local opposition to data centers has intensified over the last 6-9 months, prompting developers to make new public commitments. An example cited is Loudoun County, Virginia, a major data center hub, which recently advanced a proposed 12-month pause on new data center applications. The article also mentions that CoreWeave is actively working to mitigate pushback by emphasizing low water usage, adherence to the White House's Ratepayer Protection Pledge (funding their own power/grid upgrades), and quiet operations.
While demand for infrastructure is evident in these companies' strong sales forecasts and backlogs, the report suggests that local opposition and subsequent project delays, such as the proposed pause in Loudoun County, could delay the conversion of orders into revenue by several quarters. This underscores the importance of flexible production and careful capital allocation for investors in these sectors.