Geopolitics of AI Infrastructure Becomes Next Debate

As we’ve been writing for the better part of the past year, the focus of the next AI trade remains all about energy and ‘powering up America’ through an upgraded grid to ensure AI infrastructure can support power-hungry chatbots.

However, the conversation appears to be shifting as Goldman President of Global Affairs and Co-Head of the Global Institute Jared Cohen published a new article discussing the geopolitics of AI infrastructure and a data center diplomacy strategy.

Cohen penned an article in Foreign Policy titled “The Next AI Debate Is About Geopolitics,” in which he explores the geopolitical importance of AI infrastructure, particularly the global race to establish data centers.

On Monday, Cohen provided clients with an executive summary of the note that explained data might be the “new oil,” but nations – not nature – will determine where data enters are built.

Here’s more:

The United States is home to the plurality of the world’s data centers, yet America’s aging energy grid is under enormous strain. Energy demand in the U.S. has been flat for two decades, data center vacancy rates are near record lows, and the shortage of powered land with the connectivity required to support large-scale data centers, combined with supply chain challenges and lengthy permitting timelines for new infrastructure present challenges to realizing both the public and private sectors’ AI ambitions. Goldman Sachs Research estimates that data centers used three percent of U.S. power in 2022, a number that could reach eight percent by 2030 – estimates by regulatory and industry groups, as well as the International Energy Agency, all point in the same direction.

AI could solve some of these problems, and innovation could improve the U.S.’s domestic outlook. AI could improve grid planning, grid resilience, and materials discovery for clean energy technologies. Increased efficiency of chips, with denser circuits and new architectures are already reducing semiconductor energy needs at remarkable scale. The U.S. produces more oil than any nation in history, and natural gas production has boomed since the shale gas revolution of the early 2000s. A more robust power grid that embraces diverse energy resources—including nuclear power, small modular reactors, and reactivated nuclear plants—could change the market calculations in America’s favor.

But to win, the United States will need to enlist its asymmetric advantage of global alliances and partnerships, both in the public and private sectors. This would be a commercial and public sector strategy for data center diplomacy—proactively identifying able, willing, and trusted international partners; pooling public and private capital; identifying and addressing security and privacy risks; and incentivizing innovation across the technology stack. This task is growing more urgent, and more promising. Leaders need to develop a list of locations that satisfy all or even most of these criteria for data centers.

Key players include:

• Canada: The United States’ top trading partner with vast amounts of powered, networked land close to abundant natural resources and energy. Leading hyperscalers and data center developers have recently announced major projects in Canada totaling tens of billions of dollars, including investments in the energy-rich province of Alberta. A U.S. ally through NATO, the Five Eyes intelligence alliance, and potential future AUKUS technology partnerships.
• The Nordic countries: Leaders in green energy and now all members of NATO. They have exceptional technology companies of their own, including telecommunications giants. Their connectivity, energy sustainability, and access to power have long made them data center hubs for hyperscalers. Their cool climates also help prevent overheating in data centers, potentially allowing better performance levels and lower costs over the long term.
• Japan and South Korea: Home to world-leading technology ecosystems. Tokyo is investing 0.71 percent of its gross domestic product on semiconductors through 2025—a much higher figure than most industrial economies, including the United States.
• The Arab Gulf countries of the Middle East: These countries aim not just to export oil, but also AI. Saudi Arabia and the United Arab Emirates have some of the highest internet penetration rates worldwide. Qatar’s AI market has grown substantially, and Doha has the capacity for significant infrastructure buildouts, as demonstrated by its investments around energy and transportation. The subsea fiber optic cables that are the backbone of the modern internet have critical nodes in the Red Sea and the Persian Gulf, where 90 percent of Europe-Asia data traffic is carried. The region connects Europe to the global south. They are all moving their petrodollars toward investments in the energy transition and domestic industries, from life sciences to telecommunications to manufacturing, and AI will accelerate that trend. The U.S. has a chance to pull these countries closer to its technology ecosystem rather than China’s, but will have to make prudent risk assessments as it does so.

For those who missed it, in our note “The Next AI Trade” from April of this year, we outlined various investment opportunities for powering up America, most of which have dramatically outperformed the market.