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Dear member Reader!

II've written extensively about the data center boom, but requests keep increasing for more information on various aspects. We're clearly in a period of rapid expansion. Previously, I covered AI's energy challenge and power infrastructure.
​Powering the future AI energy challenge​
​Powering the Data Center Revolution part-1​
​Powering the Data Center Revolution part-2​

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Today, I will focus on the cooling and HVAC segment of data centers, a critical component in the data center boom. Understanding this segment’s capital expenditures and challenges is key as demand accelerates. There are 4 main categories of capital expenditures in the Data center buildout.

1. Electrical infrastructure (30-40% of capex)

• Main electrical service equipment and utility connections
• On-site power generation infrastructure, Transformers, switchgear, and distribution boards
• Battery installation, UPS systems for redundant power supply
• Busbar systems and protection devices

2. Cooling and thermal management (20-25% of capex)

• HVAC systems and environmental controls
• Chillers, air handlers, and cooling distribution units
• Liquid cooling infrastructure for AI workloads
• Heat rejection systems

3. IT infrastructure (25-30% of capex)

• Racks, cabinets, and server equipment
• Networking and connectivity systems
• Cable management and pathways

4. Building and structural (10-15% of capex)

• Civil works, foundations, and site preparation
• Building envelope and security systems
• Fire protection and safety systems

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If you look at the first 2 categories, which cover 50-65% of the total cost. That’s massive. By the end of 2025, an estimated more than 10 GW of data center capacity would break ground globally.

Today, I will double tap on the cooling and HVAC segment of the data center. HVAC represents the single largest operational energy consumer in data centers. Approximately 40% of a data center's total energy consumption is dedicated to cooling, second only to IT equipment loads. This makes thermal management the most significant ongoing operational expense after computing infrastructure.

All data center providers use a key metric called PUE (Power Usage Effectiveness). It measures the percentage of total energy consumed by the data center that is used by the IT equipment. The minimum value of the metric can be 1, which theoretically means that all the energy consumed by the data center is used by the IT equipment.In the real world, this metric will always be higher than 1 because a portion of the total power consumption is consumed by the cooling infrastructure. The goal is to bring it as close to 1 as possible while maintaining the optimal temperature in the data center. Getting close to 1 at the expense of chips overheating and performing below their optimal level is not ideal either.

Mission-critical nature

Data center HVAC systems must maintain precise temperature and humidity parameters 24/7 with redundancy and fail-safe mechanisms. The integration challenge is substantial; HVAC systems must coordinate with electrical infrastructure for effective cooling and environmental control.

Cooling systems are essential for continuous operation. As per 3D Systems CEO: "A lot of that's around HVAC. A lot of it is around keeping the data center cool and the equipment inside cool. It's not so much about running the chips, which consume very little energy overall. It's around keeping the place cool."Inadequate cooling leads to:

• Thermal throttling reducing compute performance
• Equipment failure and downtime
• Shortened hardware lifespan
• Safety hazards

Key trends transforming data center HVAC

1. Accelerated transition to liquid cooling

Liquid cooling is becoming essential for high-density racks. A hybrid approach is typically employed today, with 70% liquid cooling and 30% air cooling. Liquid cooling installations are currently taking the form of rear door heat exchangers (RDHx) and direct-to-chip (DTC) technologies. Within new construction, liquid cooling infrastructure has quickly become a default installation. Additionally, RDHx and DTC retrofits are considered a viable solution for existing facilities transitioning to higher-density workloads. The global data center liquid cooling market is projected to grow at a 24.4% CAGR from $2.6 billion in 2023 to $7.8 billion in 2028.

2. Rising rack densities necessitate advanced cooling

Average rack density has increased dramatically. Industry data shows rack densities growing from 4.8 kW in 2011 to 19.4 kW by 2021, with the percentage of racks exceeding 30 kW increasing from 1% to 29% over the same period.

• 0-10 kW: Traditional air cooling
• 10-25 kW: Air cooling with thermal containment
• 25-50 kW: Air cooling with rear door heat exchangers (RDHX)
• 50-70 kW: Liquid circuit air exchangers
• 70-150 kW: Direct liquid-to-chip (DLC)
• 150+ kW: DLC combined with RDHX or immersion cooling

3. Modular and prefabricated cooling infrastructure

To accelerate deployment speed, the industry is shifting toward system-level modularity with prefabricated, integrated modules offering plug-and-play capability. By 2025, the focus is on AI-ready, all-in-one units with embedded liquid cooling and modular chilled water systems—offering tested, deployable infrastructure for rapid scaling.

4. Sustainability and energy efficiency imperatives

Driven by surging demand for AI computing power, stronger green regulations, and rising data-related energy consumption, infrastructure optimization has become a rigid necessity. Green data centers with high energy efficiency and low carbon emissions are rapidly emerging.Direct-to-chip liquid cooling offers significant sustainability advantages:

• Reduces air conditioning needs associated with legacy air-cooling systems
• Reduces power allocated to cooling by approximately 49%
• Allows more power to be allocated to computing rather than cooling

Two-phase cooling technology:

Advanced two-phase direct-to-chip liquid cooling solutions use scalable closed-loop systems with dielectric coolant, where liquid coolant enters an evaporator plate installed directly on the CPU/GPU, extracting heat through boiling and phase change

Data center HVAC challenges

The predicted increase in the thermal footprint of server and GPU chipsets is now exceeding the capability of incumbent refrigerated-air cooling systems. Standard CPU power consumption is expected to exceed 500W, and standard GPU power consumption is expected to exceed 700W by the end of 2025, with high-performance GPUs reaching 2,000 watts in 2026. Some industry projections suggest chips may reach temperatures of up to 2,500 watts in the near future.

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​Energy consumption and water consumption constraint
​Approximately 40% of a data center's total energy consumption is dedicated to cooling, making it the single largest operational expense after computing equipment. Combined with increased and unpredictable global energy costs and stronger green regulations.Traditional cooling systems use considerable amounts of water. As one example, ChatGPT can use upwards of 0.5L of water for as little as 50 prompts. This creates significant sustainability challenges, particularly in water-scarce regions.

Data center HVAC market sizing and growth estimates

According to Goldman Sachs, Global data center demand is projected to grow to 100 GW by 2027, and total data center IT CapEx is expected to surpass $1 trillion by 2028. This estimate looks viable, given what has been announced so far. These aren’t the shooting for star estimation.

The biggest winner is actually HVAC, where annual spending has increased ~$100B from 2022, the largest increase for any single category of the AI hardware spending spree.

The global data center cooling market was $15.7 billion in 2022. It is projected to grow to over ~$150 billion by 2030. I think these estimates are conservative, and we will see that they need to be corrected to an even higher level as it becomes clearer. It may be delayed, but the number will be higher. The consensus across all sources is that the data center HVAC opportunity is experiencing unprecedented growth driven by AI, with cooling technology specifically seeing accelerated adoption as power densities exceed the capabilities of traditional air cooling systems.

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Conclusion

The data center HVAC market is undergoing fundamental transformation driven by AI workloads, sustainability mandates, and exponential increases in power density. Leading companies are differentiating through comprehensive portfolios, integrated systems thinking, strategic partnerships with silicon providers, modular prefabricated solutions, and advanced service capabilities that address the increasingly complex challenges of next-generation data center thermal management.

Happy investing,
Stockscurrent Team