Evaluating a new world order: Geopolitical risk for data centre investors

At the beginning of 2025 risk related data centre news headlines focused on protection against sub sea cable attacks; An ongoing war in Ukraine; Ability to find grid power for millions of AI GPUs: And supply chain issues. 

January saw the first shots in the weaponisation of AI where, even when it comes to conflict, not all wars present the same risks. Today, in the AI arms race, technology itself has become a new battlefield.  Think DeepSeek and GPU export controls. (See Below)

Then the prospect of a global tariff trade war made headlines turning thoughts to whether supply chain issues would become supply chain shock with potential to delay projects or lead to cancelations.

Might the cost pressure of 80%-100% tariffs on ME equipment (generators, switchgear, chillers)  push up prices for colos’ planned developments to the point of making them unviable or forcing changes on pricing dynamics?

Barely had this become the new normal than investor minds turned to military conflict contagion in the Middle East.

Such were the issues that dominated the headlines for much of H1 2025.

All amid an ongoing climate crisis.

Geopolitics in 2025 has presented a rapidly changing picture for investment in a sector where traditionally players looked first for political stability to breed confidence. But stability is in short supply.

However, as Tom Glover, Executive Director, EMEA Head of Data Centre Transactions at JLL, points out, data centres have demonstrated resilience to global challenges time after time such as during the stock crash in early 2008 and the Covid 19 pandemic when, as an asset class they were seen as a safe harbour for capital investment in uncertain times.

In this new world order where new types of risk continue to emerge not all stakeholders will have the same risk appetite and this will create opportunities.

A new picture every day

This new environment exists alongside the fact that data centres are categorised as national critical infrastructure and that Government’s recognise the national security implications of the sovereign data they host has surfaced as a new reality. Exposure to geopolitical risk is real.

It raises many questions such as does this exposure to geopolitical volatility change the investment profile for real physical assets such as data centres?

Are asset valuations being impacted?

What might a prolonged tariff war mean for cost of capital in the medium term? 

Is volatility triggering a reassessment of valuations and investment strategies across different data centre types and locations?

Will a volatile geopolitical risk environment shift the dial in terms of development capital cost and availability?

Investors have much to ponder

Despite the new world of geopol risk the sheer scale of demand and depth of capital from banks, PE, Hedge Funds, Pension Funds and Sovereign Wealth capital appears dominant enough to see the sector through volatile times.

“I could spend all day fielding calls from people with funds looking to locate,” says one developer.

The private fund announcements and partnerships keep coming with Blackstone, DigitalBridge, I Squared Capital, Brookfield, Silverlake, Meridiam, and Astra Capital Management among the most active private capital investors in data centres.

Digital infrastructure investment fund activity and announcements regularly hit the press and there is little sign of global digital infrastructure capital pools shrinking.

For example when in October 2024 KKR and Energy Capital Partners (“ECP”), the largest private owner of power generation and renewables in the U.S., announced a $50 billion strategic partnership it said: “U.S. data centre demand is projected to nearly triple by 2030, driving over $1 trillion in investment. A single planned data centre campus regularly exceeds 1 gigawatt (GW) of power demand and requires an investment of $15 billion or more across data centre and power equipment.” ¹

1. https://media.kkr.com/news-details?news_id=8f924dd6-41ea-480d-9a96-d854c7232bbc

Views from the industry

When it comes to how uncertainty over how US tariffs are playing out, developers and operators point to a surge of interest in Europe – with the additional context of European nation states realizing their exposure to US based big tech and now political events leading to a desire to develop in-country AI strategies and its attendant digital infrastructure.

Richard Ludwig, Director, Investment Banking, Digital Infrastructure and Data Centres, at Alantra, says: ‘Certainly, Trump’s tariffs spooked a lot of investors at the end of Q1 and beginning of Q2 this year. This is because digital infrastructure deals all have an international angle. Assets and investors are often across geographies. It impacts even domestic companies as they are likely to import parts from the US. Investors in general are spooked by volatility.’ 

Ludwig believes initial investor reaction is to put a brake on activity when they don’t know what’s going to happen but that ‘things have stabilised a little bit now.’ 

“At first when it kicked off, it was pretty worrying’ he says pointing to ‘completed transactions in the data centre space’ and ‘deal volumes’  showing a five year average behind where it would be. “This is a function of Trump’s tariffs,’ he adds. 

In terms of the broader geopolitical volatility or the market impact of tariffs, the current view is that the main influence on valuations remains supply and demand with some slow down in terms of wait and see how events play out.

Looking at the continuing war in Ukraine, Ian O’Hara, head of EMEA development EMEA for Serverfarm says: “Russia has been under embargo for a long time and the war in Ukraine has been priced in so we’re not seeing it having any real impact in terms of central Europe. There was some investor concern for both equity and debt underwriting of projects in Finland, but this may have dissipated since Finland became a NATO member. Developer interest in the Nordics seems to be consistently optimistic”

“Leasing activity in European markets slowed during the first half but has recently started to accelerate again. The reasons for this are not clear but seem to be centred on rebalancing of capacity roadmaps back towards Tier 1 markets”

“More broadly deals will still happen in Tier 2 and frontier markets but the question is what the structure of those deals is? What does it mean for the Tier1 operators? If they choose not to enter some high risk markets how much opportunity does that create for local investors and local operators?”

Tariffs are not the only factor says Ludwig,  citing geopolitical impact of Ukraine, the US and inflation as all linked together’.

“Last year, its impact was through inflation. Oil prices went up, gas prices went up, and this inflation impacted the cost of debt, which impacted ‘acquisition prices’. As it was ‘costing you more to buy the same assets’, ‘valuations went down’ says Ludwig.

JLL’s Glover says: ‘Clearly, geopolitical tensions and conflict prevent growth. The world is constantly faced with Volatility, Uncertainty, Complexity and Ambiguity (VUCA), and these elements have always been considered when deploying capital and the data centres sector is no different.’

Middle East

In regions such as the Middle East investors take an educated views on the entire Gulf market. Here the driver is supply and demand with demand still outstripping supply which will continue for the foreseeable future. Those are the fundamentals behind deals and valuations.

Says one UAE based senior executive at a global bank: ‘Is the geopolitical risk environment causing a reassessment of valuations? There are no major impacts on particular deals that I've seen yet, but there was some uncertainty on valuations while, for example Trump’s tariffs and the global economic instability caused has started to play out. In the UAE and Middle East I haven't seen any kind of macro adjustment in specific valuations or that has directly translated into a lack of interest or value reduction. In my region, at the moment, there are no deals that haven't come through or failed as a result of geopolitical issues. 

What is happening is that valuations are being very tightly linked to organic growth, the structural strength of the businesses, ability to continue growing over the last four quarters.

But investors seek actual organic structural growth that is not simply based on increasing prices and squeezing the supply chain or putting massive cost reduction strategies in place – which investors will see through.’

Glover believes that wherever demand is strong, the appetite for developing new supply will return when tensions cease – ‘we are seeing many markets in the Middle East region anticipating significant growth – with KSA, UAE, Qatar, Oman and Kuwait standing out as prime examples,’ he says.

Evidence to support the view that the Middle East continues to expand rapidly can be found in the number and size of projects announced and investment commitments made this year.

European Infrastructure

Other positive impacts of the current volatility include European Governments and the EU as a whole are waking up to the fact that they cannot rely solely on US owned and operated infrastructure.

O’Hara says: “The impact of government policy across Europe to accelerate AI and digital investment is also an important consideration. National governments are adopting policies to enable ‘home-grown’ AI and cloud providers. New policies are clearly designed to drive economic development, but also to mitigate the risks of reliance on a small number of US tech firms, which creates concentration risk and now, political risk. There is a deliberate push to build European cloud and AI firms – this has been a big change.” 

Ludwig agrees pointing out that European countries which have started ‘focusing on developing’ their own large-scale ‘data centres, especially for AI’.

He says a prime example and ‘good case-study’ is Denmark. “Compared with France, Germany, the Netherlands and the UK, it has a much less ‘developed private cloud industry’. With Trump’s ‘posturing’ about taking Greenland, we have seen the announcements of ‘lots of investments starting to happen in Denmark’ to ‘try to build their own cloud infrastructure away from the US’,” he says. 

East West Geopolitical Tech battles

While Europe adjusts to deal with the New World order a look East reveals a true global dimension to geopolitical volatility where technology itself, in the form of the AI arms race has become a new battlefield.

The biggest market shock of 2025 was felt in January when DeepSeek announced it had achieved a working LLM using a fraction of the resources and in a shorter timeframe than OpenAI. The markets did not respond well as $1trillion was wiped out with NVIDIA feeling the brunt. 

Investors are continually evaluating the impact of the US and China being embroiled in a protracted AI tech war centred on export controls of GPUs and tariffs. 

According to the BlackRock Global Risk Dashboard: (April 2025) a ‘prolonged U.S.-China trade conflict risks evolving into a broader economic or financial conflict.’

Such  a ‘high’ risk as identified by BlackRock is Global Technology decoupling between the U.S. and China significantly accelerating in scale and scope. 

It says: ‘AI is at the centre of U.S.-China strategic competition. The Trump administration has emphasized AI leadership as key for U.S. economic and national security and sees the contest as zero sum. The U.S. strategy has been to protect and extend its AI lead, in part by denying China access to advanced tech and hardware and concentrating the AI buildout in the U.S. – though U.S. tariffs may raise construction input costs. We expect the administration to keep focusing on export controls (recently tightened to include NVIDIA H20 chips), data security and increasingly biotech to counter the China tech challenge.’

Says Ludwig, the ‘geopolitical element’ would be the notion that with DeepSeek they are ‘using AI as a weapon against the West’. 

When it was announced that, DeepSeek, they could produce what NVIDIA based OpenAI   have been doing in the US ‘for a fraction of the price’ it had a major impact, he says. 

‘Now no-one really believes that’s true, but their announcement served as a political weapon against NVIDIA, wiping a trillion off the stock market. AI is being used as ‘a geopolitical weapon between the East and the West.’ 

The fall out effects of restricting the export of chips and GPUs to China could also be felt in Europe with controlled movement of GPU exports to both blocs. 

JLL’s Glover points out that the issue of GPU advancements are having a larger impact on growth than geopolitical issues driven by a focus on issues such as future proofing multi-billion-dollar data centre investments. Design has become a key topic.

Capital access and flows

Alongside the new geopolitical risks, whether private or public all investors rely on a basket of indicators to ‘de-risk their methodology.’ These include business confidence, health of wider economy and 10 year bond markets – cost of borrowing. 

There is a view that says data centre development stage funding will remain in private hands. 

A counter view to this is that the sheer capital intensity required for the new generation of GW scale data centres cannot be met by traditional players. 

Does geopolitical volatility raise questions for the prospect of one or more of the large (multi gigawatt) data centre firms going public this year? Already questions are being asked whether public markets understand or are prepared to back the capital intensity and long term cash generating nature of data centres. And what, if anything would flotations and public market performance mean for private market funding?

Of the current Geopolitical environment O’Hara says: “There has been little or no impact on finance pricing or capital access. It remains a highly competitive market with investment money looking to position in data centre projects in mature markets such as Europe and across the rapidly growing Asia markets.”

Investors have much to ponder. For now investor confidence in data centres as an asset class remains high in spite of increased geopolitical risk.

What global organization reports have to say on Geopolitical Risk
IMF Global Financial Stability Report (April 2025)

The International Monetary Fund Global Financial Stability Report describes a world where:

“Shocks such as wars, diplomatic tensions, or terrorism can disrupt cross-border trade and investment. This can hurt asset prices, affect financial institutions, and curtail lending to the private sector, weighing on economic activity and posing a threat to financial stability.”

“Such risks are challenging for investors to price due to their unique nature, rare occurrence, and uncertain duration and scope. This can lead to sharp market reactions when geopolitical shocks materialize.” 

In the chapter on Geopolitical Risks: Implications for Asset Prices and Financial Stability marked the report covers “Key Channels of Transmission for Geopolitical Risk and Prices of Financial Assets.

Figure 2.3: Key Channels of Transmission for Geopolitical Risk and Prices of Financial Assets
An increase in geopolitical risk can have an impact on prices of financial assets through two key channels.

Source: The International Monetary Fund Global Financial Stability Report (April 2025)
Note: FDI = Foreign Direct Investment.

WEF – Global Risk Report 2025 – Q1 2025

In its Global Risk Report 2025 the World Economic Forum (WEF) categorized a top ten risk list based on the cohorts of Civil Society, International Organizations, Academia, Government and Private Sector the last three mentioned here ranked ‘Misinformation and Disinformation’ as the number one risk. 

The WEF report also said: “Private-sector concern with the two-year outlook for Geoeconomic confrontation has moved up from last year’s edition of the report, where it was not a top 10 risk; it now is #6.”

Based on the estimate that ‘two-thirds of the world’s population – 5.5 billion people – is online and over five billion people use social media in terms of AI and compute power, the WEF said: ‘AI technologies are low in the risk ranking. In fact, it has slightly declined in the two-year outlook, with the risk now ranking #31 compared with #29 in last year’s report. However, complacency around the risks of such technologies should be avoided given the fast-paced change in the field of AI and its increasing ubiquity.”

The WEF report focuses on AI threats such as algorithmic bias, untrustworthy AI generated content and social polarization as threat vectors of AI citing “the risks for citizens resulting from the combination of greater connectivity, rapid growth in computing power, and more powerful AI models.” 

This is important as growing data centre visibility to citizens means public sentiment becomes more important to investors.

Investor considerations:

• Which economy’s digital demand is underserviced by infrastructure
• Size of addressable markets by population / GDP / age
• Connectivity (how many subsea cables come into country)
• Country ambitions (look at Saudi as an example)
• Country’s wealth

Source: JLL