In a recent communication to clients, Goldman Sachs analyst Vinay Viswanathan provided insights into the U.S. data center securitization market.

He highlighted that this sector, fueled by significant investments in facilities equipped with thousands of GPUs for large language models, is on track to set a record this year.

However, Viswanathan expressed caution regarding the long-term balance of supply and demand, despite some positive short-term indicators for the data center industry.

Viswanathan identified three key factors contributing to the current momentum in data center asset securitization:

• Surge in Cloud Capital Expenditure: Major tech giants like AWS, Microsoft, Google, Meta, and Oracle have ramped up their capital expenditure forecasts for Q1 2025, indicating strong future demand for AI-driven cloud services.
• Record Low Vacancy Rates: North America’s data center vacancy rate hit an all-time low of 1.9% in late 2024, with 72% of new capacity already leased.
• Government Support: The Trump administration’s Stargate initiative prioritizes generative AI infrastructure, fostering increased investment from the private sector.

“Securitization has become a reliable and scalable financing source for the capital-intensive digital infrastructure industry,” Viswanathan noted.

He pointed out that the size of the data center securitization market has surged from $5 billion to $30 billion across asset-backed and commercial mortgage-backed securities.

Earlier this year, growth in the data center securitization market faced challenges due to concerns over demand related to enhanced AI efficiency and tariff uncertainties.

However, pricing and issuance have rebounded significantly, positioning data center securitizations for potential new highs by the end of the year.

Looking ahead, with major projects like Stargate accelerating the supply pipeline, Viswanathan warned of the long-term implications: “While we see positive signs for the data center sector in the short term, we remain cautious about the long-term supply/demand balance.”

He noted that equity research forecasts suggest the market could reach peak occupancy by mid-next year, followed by a gradual loosening in subsequent years.

Two primary factors underpin this cautious outlook:

1. The increasing pipeline of planned data centers is expected to lead to higher completion rates, with the Stargate project set to elevate future supply further.
2. The projected growth in supply will require a corresponding rise in AI workload demand to maintain stable occupancy beyond the next two years.

Viswanathan cautioned that if AI demand were to decline, it could adversely impact rent growth and lease renewal rates, particularly for customized data center assets, which are susceptible to obsolescence.

While positive developments are evident and the AI infrastructure expansion is well underway, UBS analyst Steven Fisher believes that the benefits from this data center growth will begin significantly impacting the real economy by Q2 2026.

As Viswanathan aptly put it, the data center boom won’t last forever. Eventually, the market will shift from scarcity to surplus—and that’s when the growth phase may end. Until then, the momentum continues, but it’s important to remember that every cycle has its conclusion.