Refuting the AI bubble theory! UBS: No sign of cooling in data centers, raises next year's market growth forecast to 20-25%

UBS’s latest report points out that the global data center equipment market remains red hot, with 25GW of capacity under construction. Market growth is expected to reach 20-25% by 2026, with high-intensity investment likely to continue at least until 2027, and AI monetization is already showing early signs. This article is based on a Wall Street Journal article, organized, translated, and written by Foresight News. (Previous summary: JPMorgan’s 2026 outlook: economic divergence, policy divergence, and soaring AI adoption) (Background: Bank of America’s Top 10 Predictions for 2026: Continued AI boom and unexpected economic growth in China and the US)

UBS, in its latest in-depth report released on December 5, believes the global data center equipment market “shows no signs of cooling.” According to the latest monitoring data from UBS Evidence Lab, global data center capacity is in a period of rapid expansion, with current construction capacity reaching 25GW and existing operational capacity at about 105GW. The analyst team led by Andre Kukhnin pointed out in the report that, considering the conversion of ongoing projects into actual capacity, as well as the continued surge in capital expenditures by hyperscale cloud providers, the industry is expected to achieve approximately 25-30% growth in 2025, with strong momentum extending into 2026.

Based on strong data from ongoing projects and extremely low vacancy rates, UBS has raised its mid-term growth expectations for the industry, projecting that the market, including power, cooling, and IT equipment, will grow at 20-25% in 2026.

This optimistic forecast directly refutes recent market rhetoric about an “AI bubble.” UBS emphasizes that the adoption rate of generative AI (GenAI) is growing exponentially. Although monetization is still in its early stages, there have already been substantial annual recurring revenues (ARR) of $17 billion. The deepening application of this technology, along with replacement demand driven by shorter AI server life cycles, supports the long-term prosperity of the entire industry chain.

Upward Growth Revision, Liquid Cooling Leads

UBS’s latest report updates its core assumptions for the global data center equipment market. The firm expects that, after the market grows 25-30% in 2025, the growth rate in 2026 will remain at a high level of 20-25%, then 15-20% in 2027, and maintain a steady annualized growth of 10-15% from 2028 to 2030.

This forecast is supported by cross-verification from multiple data sources. UBS analysis shows that data center vacancy rates in North America, Europe, and Asia-Pacific remain at historical lows—1.8%, 3.6%, and 5.8%, respectively—indicating a market of supply shortage. At the same time, UBS Evidence Lab’s pipeline data indicates that, if planned capacity comes online as scheduled by 2029, even without additional new projects, the compound annual growth rate (CAGR) for 2025-2029 will reach 21%.

Among the segmented fields, the cooling market is especially outstanding. As AI chip power density increases, UBS predicts that by 2030, the cooling sector will maintain about a 20% compound annual growth rate, with liquid cooling technology leading at a 45% growth rate, making it the fastest-growing segment.

Capital Expenditure Intensity Remains, Per-Megawatt Value Rises

Addressing market concerns about the sustainability of capital expenditures (Capex), UBS points out through cost structure analysis that the construction costs of AI data centers are undergoing structural changes.

The report shows that, compared with traditional data centers, the per-megawatt facility cost of AI data centers has increased by about 20%, mainly driven by upgrades in cooling and power infrastructure. However, the more critical change is the surge in IT equipment costs—due to the high price of AI chips, IT equipment’s share of total costs has risen sharply, with per-megawatt costs 3-4 times that of traditional centers. This structure lowers customers’ sensitivity to facility (Facility) prices, benefiting upstream equipment suppliers.

Regarding the financial status of hyperscale cloud providers, UBS points out that although Capex/Sales more than doubled compared to 2023, reaching 25-30%, current capital expenditures still account for about 75% of the industry’s operating cash flow (OCF), which is within a controllable range. The UBS tech hardware team forecasts that such high-intensity investment will continue at least until 2027.

Early Signs of AI Monetization, Hedging Bubble Risks

For investors’ top concerns—“returns” and “monetization”—UBS provides positive early evidence in the report. UBS estimates that the annual recurring revenue (ARR) of major native AI applications has reached $17 billion, about 6-7% of the current SaaS market total.

UBS emphasizes that GenAI, as a technology, is being adopted at an unprecedented speed. A recent McKinsey survey also shows that, over the past 12 months, companies using AI achieved an average revenue increase of 3.6% and an average cost reduction of 5%.

Nevertheless, UBS also highlights potential physical constraint risks. Power supply is seen as the biggest bottleneck, especially in Europe, where grid connection schedules for some primary hubs have been delayed into the 2030s. In addition, UBS expects data centers to account for more than 60% of U.S. power growth from 2025-2030, posing challenges to grid reliability and equipment delivery. However, UBS believes these bottlenecks will mostly increase the value of existing assets rather than end the investment cycle.

Winners and Losers from Technological Iteration

As rack power density moves from the traditional 10kW to 100kW or even higher in the AI era, the technical architecture of infrastructure is undergoing profound changes. UBS specifically notes the trend toward 800V DC architecture, predicting this technology will be widely deployed by the end of 2028 or early 2029.

This technological transformation will reshape the competitive landscape. UBS notes that medium voltage (MV) equipment demand will remain stable, but low voltage (LV) AC equipment faces the risk of being replaced by higher-voltage DC distribution. In this trend, vendors with a comprehensive medium-voltage product line and innovation capability are more defensible.

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This article, “Refuting the AI Bubble Theory! UBS: No Sign of Cooling in Data Centers, Raises Next Year’s Market Growth Forecast to 20-25%,” was first published by BlockTempo, the most influential blockchain news media.