North America’s data center outlook: Strong demand, power hungry

Data centers are surging across North America, led by hyperscalers and Artificial Intelligence (AI) (see table 1). Yet power deliverability and local support – not demand – will determine the trajectory of the buildout. In Canada, the US, and Mexico, growth will take off where grid capacity and community support align, and stall where they don’t. For developers, utilities, policy makers, and financiers, these factors form the compass for identifying opportunities that are both investable and feasible to build.

Technology conglomerates Meta, Amazon Web Services (AWS), Microsoft, and Google currently dominate North America’s data center landscape when it comes to spending and IT capacity (operating power used by equipment inside data centers). Together, they control about 13GW[1] of live IT capacity, accounting for 42% of the region’s total live IT capacity, and roughly another 7GW under construction. These companies build and operate facilities in the hundreds of megawatts range, placing them in the hyperscaler category. However, hyperscalers are only one of several types of operators participating in the data center boom (see table 2).[2]

[1] Data is as of September 30, 2025, from BloombergNEF’s Global Data Center Live IT Capacity Database (1.2.0).

[2] See US data center demand is surging – but where, when, and how much? for more on types of data centers.

The US market is experiencing strong momentum to build hyperscale data centers, primarily to meet AI demand. Industry estimates forecast the US data center revenues to grow at a 6.64%[3] CAGR per year from 2026 to 2031. The four largest owners in the US – Meta, AWS, Microsoft, and Google – command about 43% of the US market’s live IT capacity, highlighting the influence of technology companies on the market. Investment volumes reflect this dominance as well, with at least USD 40bn[4] from Microsoft, and USD 600bn in planned spend from Meta by 2028.

By contrast, while the Canadian data center market is only a fraction of the size of the US market, it is projected to grow faster – from about USD 11bn[5] in 2025 to roughly USD 25bn by 2031. Growth is supported by hyperscaler investments, although less than in the US, including Microsoft’s USD 5.5bn[6] investment between 2026 and 2028 for digital and AI infrastructure. Microsoft and AWS are the two largest data center operators in Canada by live and under-construction capacity. Microsoft has about 0.41GW under construction, but no live IT capacity, while AWS operates 0.16GW. Unlike the US, however, Canada is not dominated by technology conglomerates, operators IREN and Vantage Data Centers also rank among the top four operators by live IT capacity.

The size of the Mexican data center market is about 100 times smaller than the US market, but it has the second-highest growth outlook at a 13.74%[7] CAGR from 2026 to 2031. The market is led by ODATA, CloudHQ, KIO Networks, and Equinix when considering both live and under-construction IT capacity. These companies command 53% of the market with 0.13GW[8] of live IT capacity and 0.07GW under construction. Unlike the US, Mexico’s largest players are not dominated by technology conglomerates. Instead, the market is shaped by players focused on internet connectivity and cloud services. Still, interest from US technology firms is rising: AWS has committed to spending USD 5bn over the next 15 years, and Microsoft has pledged to spend USD 1.3bn between 2024 and 2027.

The three markets are experiencing varying levels of interest from major technology firms to build hyperscale data centers for public cloud, social media, and AI. Yet, the wholesale co-location data center model still has the highest IT capacity under construction in each market (see figure 1). In this model, owners lease data center capacity to tenants in the form of rooms, entire suites, or dedicated buildings with options to customize the setup. Even though hyperscalers are aggressively expanding their self-build footprint for cloud and AI workloads, they do not yet represent the majority of operational capacity. The “who” of current buildout is increasingly hyperscalers, but the “how” is anchored in co-location. The next question is: What is driving this demand surge?

[3] Data is sourced from Mordor Intelligence.

[4] References Microsoft’s Vice Chair and President Brad Smith’s statement that the company will invest USD 80bn to build out AI data centers with more than half of the total investment in the US.

[5] Data is sourced from Mordor Intelligence.

[6] Converted from CAD 7.5bn using an exchange rate of 0.738 CAD/USD on February 10, 2026.

[7] Data sourced from Mordor Intelligence.

[8] Data is as of September 30, 2025, from BloombergNEF’s Global Data Center Live IT Capacity Database (1.2.0).

The recent surge to build more data centers is mainly fueled by two key trends: generative AI and traditional cloud computing.

Generative AI tools such as OpenAI’s ChatGPT are anticipated to transform many – if not all – sectors including financial systems, healthcare, and even cinema. AI workloads require constant, high-intensity computation and run continuously, meaning these applications need significant IT capacity. By contrast, traditional cloud workloads – such as streaming sites, social media, and websites – are user-driven, so capacity usage fluctuates. As adoption grows, both types of workloads require increasing amounts of IT capacity.

Government support in the form of funding, policies, and partnerships is further amplifying data center development. The current US administration released its Winning the Race America’s AI Action Plan in July 2025. The plan aims to streamline regulation, expand AI-related workforce development, and promote global AI trade. Canada has its own national AI strategy, complemented with proposed federal funding of roughly USD 683m.[9] Mexico, on the other hand, lacks a centralized federal AI strategy. Instead, the market has developed the Mexico IA: Accelerated Investment initiative, which is a public-private partnership focused on the development of AI.

Although AI is garnering immediate attention from governments to speed up adoption, traditional cloud computing is still a major driver of data center growth. The North American cloud market is forecast to grow at a 15.20%[10] CAGR and exceed USD 1 trillion in revenues by 2032. Meanwhile, the AI market is forecast to grow at a 23.90%[11] CAGR during the same period to about USD 400bn – less than half the cloud computing market (see figure 2). While the traditional cloud computing market is larger, AI is growing at a much faster pace.

[9] Converted from CAD 925.6m using an exchange rate of 0.738 CAD/USD on February 10, 2026.

[10] Data sourced from Fortune Business Insights.

[11] Data sourced from Fortune Business Insights.

Across North America, the balance of these AI and cloud computing drivers varies. The US is hyperscale-led and heavily oriented on AI deployment. Canada is supporting AI growth but still cloud-anchored, while Mexico is mainly focused on traditional computing with an emerging interest for AI. Regardless, AI and cloud computing are driving data center hotspots in specific areas across North America.

Data centers exist in various clusters across North America (Figure 3) driven by four key factors: power availability, proximity to demand, policy and incentives, and community support or resistance. In the US, data center hotspots Virginia, Texas, and Ohio collectively host approximately 40%[12] of the total live and under-construction IT capacity in the US. The three major hubs in Canada – Alberta, Ontario, and Quebec – command 85% of the total live and under-construction IT capacity in the market. In Mexico, over 85% of the market’s live and under-construction IT capacity comes from Querétaro, Mexico City, and Nuevo León. Each location is impacted differently by the four key factors.

For a deeper dive into key data center siting factors, see US data center demand is surging – but where, when, and how much?

[12] Data sourced from BloombergNEF’s Global Data Center Live IT Capacity Database (1.2.0), as of September 30, 2025

The biggest hurdle – power

The growing appetite for AI and cloud computing is straining power sources. Power deliverability has therefore become a major determinant for siting data center locations.

The largest US grid operator, the Pennsylvania-New Jersey-Maryland Interconnection (PJM), is facing capacity constraints due to the influx of demand for grid connections. This affects developers in Northern Virginia and Ohio, which are situated in the area PJM controls. Developers in Texas are in a similar bind but are forging ahead with behind-the-meter[13] solutions such as gas turbines fueled by the state’s abundant and inexpensive natural gas. Read more on surging US power demand in RaboResearch’s report The US scrambles to meet surging power demand by 2030.

The Canadian market shares similar grid constraints with the US. Alberta has already run out of capacity for large-load projects. Ontario’s transmission capacity availability is shrinking. Over 90% of Quebec was powered by hydroelectricity in 2023, yet despite the abundant supply, the unprecedented demand from data centers is leading to a supply crunch.

Mexico has an existing gap in investment in transmission and distribution infrastructure, which has created challenges to secure power supply. In Querétaro, Mexico, Microsoft had to rely on its own natural gas generators due to delays in obtaining connectivity to the grid. Additionally, Mexico imports about two-thirds of its natural gas supply from the US, which exposes the market to supply disruptions amid geopolitical tensions.

The implication across markets is clear: power supply decides where and when capacity can be delivered.

Gold star for proximity to demand

Placing data centers close to demand for latency advantages – the time delay between a request for data and processing – is a core siting priority. This means locating them in key metropolitan hubs like Northern Virginia, Ontario, and Querétaro, which have dense networks and enterprise users.

In the US, Virginia’s data center story started with the need to establish communication networks for the Department of Defense. Then it was followed by internet companies like America Online (AOL) before the dot.com bubble. Metropolitan areas like Dallas, Texas, and Columbus, Ohio, now host data centers serving financial services, government, healthcare, and individual users.

Similarly, in Canada, Ontario is home to about 40% of the nation’s population and has latency-sensitive sectors similar to those in the US. In Mexico, Nuevo León benefits from cross-border proximity and supply-chain links to the US. Meanwhile, Mexico City and Querétaro are both geographically central, providing low-latency advantages and enabling companies to provide more efficient networking.

Local policy and incentives lure developers

Local incentives benefiting data center development are advantageous for attracting developers. In the US, Virginia offers the Data Center Retail Sales and Use Tax Exemption (DCRSUT Exemption), which is tax relief in exchange for creating jobs and capital investment in the state. The exemption has been in place since 2010 and will sunset in 2035. So far, it has saved data centers USD 2.7bn in taxes between 2010 and 2025. Texas is no stranger to tax exemptions; the state offers 100% sales tax exemptions on equipment such as computers, cooling, and power infrastructure. Ohio has the Section 122.175 tax exemption, which reduces taxes on the purchase of eligible data center equipment. For example, Microsoft was granted USD 72.5m in tax exemptions for three new data centers.

In Canada, tax exemptions and province-level incentives for data centers are not common. However, Alberta recently introduced a prepaid tax benefit via a 2% levy on computer hardware for grid-connected data centers, which can later be offset against provincial corporate income taxes.

In Mexico, Querétaro allows certain data centers to bypass environmental reporting standards and carbon taxes, which not only cuts down the permitting process but also provides a financial benefit to data center developers.

Guardrails are just as important. In 2025, the Government of Ontario signed into law Bill 40. The legislation allows grid connections only for data centers that will maximize economic growth by creating jobs and making capital investments in the province, rather than granting connections indiscriminately.

These policies signify that incentives can attract interest, but grid access will determine which ones will materialize.

Community pushback threatens development

Aside from being power-hungry, data centers can be water-intensive. One source estimates that larger data centers could consume 5m gallons per day, usage that’s equivalent to a town of 10,000 to 50,000 people, and this has raised concerns about water scarcity. Communities are now hyper-aware of the impact of data centers, igniting a wave of NIMBYism, or “not in my backyard”.

An industry source estimates that USD 98bn in US data center projects have been blocked or delayed because of community opposition. Although there aren’t similar figures to quantify local opposition in Canada and Mexico, the markets are facing pushback on the basis of power outages, rising electricity costs, and water shortages.

[13] Behind-the-meter refers to off-grid solutions.

The US, Canada, and Mexico are on distinct trajectories in the AI-era buildout of data centers, each shaped by different levels of maturity, investment, and policy support. While wholesale co-location facilities currently dominate all three markets, the billions in investments from hyperscalers signal an impending shift toward larger self-build deployments as AI and cloud demand accelerates. The overarching demand drivers, AI and traditional cloud computing workloads, are present across the region, but the influence of siting factors such as power availability, proximity to demand, and community opposition varies by market.

Among the three markets, the US is the most developed and mature with 30GW of live IT capacity, a national AI strategy, and lucrative local incentives. Canada follows with only 1.6GW of live IT capacity, a national AI strategy, and some provincial incentives. Mexico is the greener of the three with 0.2GW of live IT capacity, no federal AI strategy, and a smaller set of local incentives (see figure 4).

While the growth prospects are bright due to surging demand and supportive policies, the biggest obstacle these markets need to overcome – regardless of maturity – is power deliverability. Without access to reliable and abundant power, data center growth is likely to stagnate. RaboResearch will cover the power challenges for data centers in a separate piece.