The Trump administration's sweeping tariffs threaten to increase costs for building data centers needed to support artificial intelligence, a move some technology and real estate industry analysts said could disrupt a surge in development.
A 25% tariff on steel and aluminum — materials used in these digital hubs — took effect March 12. On Wednesday, President Trump imposed duties as high as 34% on China, Taiwan, South Korea and other countries that supply electronics and other data center equipment. Such price hikes could stymie development of properties for the booming AI industry, some analysts note.
Microsoft, Amazon, OpenAI and other large firms are on the brink of what a JLL executive called the "biggest data center development binge" on record that includes the $500 billion Stargate Project in West Texas. Trump himself called it the “largest AI investment in history” early in his term.
"The problem is that for a lot of these materials, developers need to have a steady supply chain," said Kristen Vosmaer, managing director with JLL's data center workplace dynamics business, in an interview. He added that once builders deplete inventory already shipped to the United States, "those tariffs will have an impact in relatively short order."
Investments in artificial intelligence by U.S. tech companies in recent years have helped turbocharge development of data storage, raising the profile of the facilities as an in-demand commercial property type.
JLL expects another record year for development financing of data centers in 2025, including colocation and hyperscale projects by large-scale cloud providers such as Amazon Web Services, Microsoft Azure and Google Cloud. Facilities worth roughly $170 billion will need to secure construction or permanent financing this year, according to the brokerage's 2025 global data center outlook.
Higher costs, halted projects
Tariffs on materials and equipment would drive up costs for data storage development if they stay in the long-term, Vosmaer said. Other analysts agree.
"There's no doubt that the equipment that goes into data centers will become significantly more expensive,” D.A. Davidson analyst Gil Luria told Reuters, adding that tech giants such as Microsoft and Amazon are now deploying a more cautious approach to their data center developments.
Microsoft recently halted or delayed talks for data storage projects in Illinois, North Dakota, Wisconsin, the United Kingdom, Australia and Indonesia, according to Bloomberg News. Redmond, Washington-based Microsoft did not respond to requests by CoStar News to comment.
It's unclear whether the pullback is linked to the possibility of higher tariff-related costs, or to a rethinking of the needs for AI.
Some investors have expressed skepticism this year about the billions invested by Microsoft, Amazon, Facebook parent Meta and other tech firms to build out AI-related data storage facilities since reports surfaced that Chinese startup DeepSeek rolled out powerful AI technology at a fraction of the cost of its Western rivals.
A spokesperson for Microsoft, responding to a report by investment bank TD Cowen that the tech giant had canceled leases with at least two data center operators, previously told CoStar that Microsoft still expects to spend over $80 billion on AI computing infrastructure this fiscal year that ends in June.
However, the tech giant "may strategically pace or adjust our infrastructure in some areas,” allowing the firm to "invest and allocate resources to growth areas," the spokesperson said.
Microchip bets
Semiconductor chips that power AI processing, data storage and quantum computing were exempted from Wednesday's tariffs. But President Trump told reporters aboard Air Force One on Thursday that computer chip tariffs could be coming "very soon."
Higher chip costs could pose the most serious threat to tech companies and real estate developers making bets on where to build data centers, Vosmaer said.
“Significant tariffs on semiconductors from Europe and Taiwan would have the biggest impact, just because of the sheer size of those investments as a portion of data center development,” he said.
JLL's data center clients haven't yet reported tariff-related delays in projects in the planning stages or under construction, Vosmaer said.
A slowdown in land purchases for data storage facilities could be the first caution sign that developers are pulling back, he said.
Hyperscalers such as Microsoft and Amazon need to consider such factors as current sales and anticipated demand from commercial, government and enterprise customers when they make decisions to build new facilities, Vosmaer said.
“There’s always ebbs and flows to how aggressively the tech giants build out their data center capacity," he added.