European Union countries have been building too many data centres because the scale of the artificial intelligence (AI) economy has been vastly inflated, according to a new report.
Most AI industry money has effectively travelled in a circle, artificially inflating the sector and making it seem much bigger than it really is, said the March 13 report by former Wall Street Journal bureau chief Martin Peers.
For example, he said after Microsoft invested $13 billion in ChatGPT developer OpenAI in 2023, the large-language model developer then spent much of that money purchasing cloud services from Microsoft’s Azure.
This was “just one example where money has travelled in a circle, making the AI business seem bigger than it actually is,” said Peers.
Microsoft, Alphabet, Amazon, and Meta have each made recent estimates that spending on artificial intelligence would exceed $320 billion in 2025, up almost double the $151 billion spent in 2023.
The estimates, which Peers called “unrealistic”, have nonetheless caused a gold rush in the construction of data centres, which researchers have said have increased air pollution and the incidence of lung diseases, cancer and asthma.
The actual AI market is much smaller than it seemed, said Peers.
Another example was Nvidia, which in early 2023 sold graphical processing unit chips to CoreWeave, a cloud computing firm, and then spent $1.3 billion to rent the same chips back.
“That arrangement gave CoreWeave’s business an invaluable early boost, paving the way for further business deals it is riding toward the IPO,” Peers said.
Likewise, Amazon and Google had invested billions of dollars into AI start-up Anthropic, which then spent much of that money on their cloud services, the New York Times revealed March 11.
What Peers called “AI’s money-go-around” has inflated the AI revenues of cloud providers including Amazon and Google, as well as the valuations of start-ups such as CoreWeave.
That will come to an end eventually, Peers insisted said, hastened by expanding data centre capacity “throughout the industry”.
The “big risk” was the industry would “eventually overbuild data centre capacity”, similar to a 2000-2002 glut in fibre optic cable construction, he said.
In 2003, the New York Times reported that what it called “the fibre-optic fantasy” had begun to slip away.
Before that, though, “more than a dozen companies” constructed expensive fibre-optic networks “as they rushed to claim a piece of the next gold rush”, reported the Wall Street Journal at the time.
Just as technology companies ultimately overbuilt fibre-optic networks, Microsoft, Amazon and Google have overstated “their fast-growing AI revenues, without explaining that some of it is essentially captive spending by start-ups they partly own”, said Peers.
Exaggerated AI revenues have led Amazon Web Services to invest €40 billion in building new data centres in Germany, Spain and other parts of the EU, he added.
In December, the EU and Irish Government revealed they were investigating Irish building companies for anti-competitive practices in seeking to expand their roles in the lucrative market for building data centres.
Officials from the European Commission and Ireland’s Competition and Consumer Protection Commission raided the Irish building company Sisk and another firm in November 2024 to explore possible breaches of competition law.
Ireland stopped building data centres in the Dublin area in 2021 after forecasts suggested they would make up 30 per cent of Ireland’s electricity demand by 2032.
Overbuilding data centres, based on an exaggerated view of AI demand for them, has increased both air pollution and the incidence of cancer, asthma, and other diseases, said researchers at CalTech and UC Riverside.
Pollution from data centres has cost $5.4 billion in additional health costs in the US alone since 2020, they said.
