The Hidden Costs of Data Centers and Chip Fabs Buildup

Note: Written with the help of my research team 🙂 including: (Google Gemini, Google Notebook LM, Microsoft Copilot, Perplexity.ai, Claude.ai and others as needed)

The 21st century is rapidly being reshaped by Artificial Intelligence, leading to the adage that “compute is the new oil”. This era of unprecedented growth, however, comes with a massive demand for infrastructure—specifically, colossal data centers and advanced microchip manufacturing facilities. While the promise of technological advancement is exciting, the rapid buildout across the USA is revealing significant environmental, social, and economic challenges that communities and the nation must confront.

The Data Center Explosion: A Silent Invasion with Overt Impacts

Across the U.S., giant, windowless warehouses—data centers—are popping up at a staggering rate, often more than two every week. By the end of 2024, an estimated 1,240 large-scale data centers were either built or approved for construction, a nearly four-fold increase since 2010. These facilities, essential for feeding AI algorithms, storing data, and powering our digital lives, are concentrated in areas where presumably there is reliable power, ample water supply, tax breaks, and affordable land, such as Northern Virginia and Maricopa County, Arizona.

However, this rapid expansion has a dark side:

• Environmental Strain: Water and Power Thirst Data centers are incredibly resource-intensive. They require massive amounts of water for cooling. Shockingly, up to 43% of America’s largest data centers are located in areas already experiencing high or extreme water stress. For example, a single planned Microsoft campus in drought-stricken Arizona is projected to consume 1.83 billion gallons of water annually, enough to supply a city the size of Santa Cruz, California. This often means drilling into groundwater or drawing from already stressed sources like the Colorado River. The demand for electricity is equally breathtaking. The growth of data centers, particularly turbocharged by AI, is driving “insane and worsening power demands”. GPU-powered AI infrastructure has a 5 to 10 times higher power factor than traditional CPU racks, making its energy appetite immense. U.S. data centers could consume more electricity than the entire country of Poland by 2028, and globally, demand could nearly double India’s total usage by 2034. This insatiable hunger for energy is so severe that some states are reversing green energy promises, delaying the closure of coal plants and even building new natural gas plants to meet the load.
• Community Impact: Noise, Vibration, and Secrecy Living near a data center can be a profound challenge. Residents in places like Northern Virginia describe a constant low-frequency hum and vibrations from the 24/7 cooling systems and fans. Donna Gallant, a 30-year resident, describes it as triggering anxiety and causing sleepless nights, while Carlos Janice’s 7-year-old son thought a “spaceship” was outside due to the vibrations. Chronic noise exposure has even been linked to serious health problems like cardiovascular disease. Adding to the frustration is a lack of transparency. Tech companies often use non-disclosure agreements (NDAs) and shell companies (LLCs) to conceal details about their operations and locations, making it nearly impossible for communities to get answers or challenge developments. Land originally designated for housing is also being rezoned for data center construction, further impacting residential areas and the overall landscape.
• Economic Disparities: Who Pays the Price? States often offer large tax incentives to attract data centers, with Virginia, for instance, providing nearly a billion dollars in tax savings in 2023 alone. However, these facilities are highly automated and create few permanent jobs—some running with as few as 25 people, even the largest employing fewer than 150 permanent workers. This creates a lopsided deal where communities bear the environmental and social costs, while the economic benefits in terms of local employment are minimal. Furthermore, the surging demand from data centers is already driving up electricity bills for average Americans, with data center demand accounting for 70% of increased electricity costs in one U.S. region last year.

The Chip Manufacturing Hurdles: A Complex Reshoring Effort

Alongside the data center boom, the U.S. is pushing to reshore microchip manufacturing, spurred by initiatives like the CHIPS Act, which allocates over $52 billion to this effort. However, this endeavor also faces significant challenges, as exemplified by both personal experiences and large-scale projects.

• The Amkor Experience: A Close Call in Peoria The growth of chip manufacturing facilities often impacts local communities directly. A prime example is the planned Amkor facility in Peoria, Arizona. Initially, a semiconductor packaging and testing facility was slated for the Vistancia neighborhood. Local residents protested due to concerns about increased traffic, safety, noise, and the facility’s aesthetic incompatibility with a planned community. Adding to residents’ frustration, what was initially described as a 54-foot-tall structure expanded in plans to a significantly larger 118-foot-tall facility. This situation personally resonated, as the buildup was much bigger than the initial plans suggested. Fortunately, the city of Peoria, after community outcry, worked to secure a new location for Amkor at Lake Pleasant Parkway and the 303, moving it away from the residential area. This demonstrates how swiftly industrial plans can escalate and the importance of community engagement in ensuring sustainable development. (Side note: This particular story hits home, as it is my neighborhood and witness this process firsthand.

• Broader Challenges for Chip Fabs Even for industry giants like TSMC (Taiwan Semiconductor Manufacturing Company), building advanced fabs in the U.S. has been fraught with difficulty:
  • Cost Overruns and Delays: TSMC’s $40 billion fab in Arizona, meant to be operational in 2024, was delayed until 2025. The company’s founder stated that making chips in the U.S. could cost 50% to 100% more than in Taiwan. Similar delays and cost increases have affected Intel’s new fabs in Arizona.
  • Skilled Labor Shortage: A critical hurdle is the lack of a skilled workforce experienced in leading-edge chip manufacturing in the U.S.. TSMC had to bring hundreds of experienced technicians from Taiwan to install tools and train local teams. ASML, the sole producer of advanced EUV lithography machines, is planning a new training facility in Arizona to address this gap.
  • Supply Chain Challenges: Replicating Asia’s robust semiconductor supply chain has proven difficult. American chemical suppliers often cannot meet the necessary purity or volume standards, leading TSMC to import ultra-pure sulfuric acid from Taiwan, even with the added cost of shipping across the Pacific. Some suppliers supporting TSMC’s Arizona project have even halted or delayed their own U.S. plans due to ballooning construction costs.
  • Environmental and Infrastructure Needs: Chip fabs require immense amounts of ultra-pure water, a challenge in arid regions like Arizona, even with advanced recycling efforts. They also demand stable and substantial power; a single advanced EUV machine can consume about one megawatt of electricity. TSMC’s first Arizona fab alone requires 2.85 gigawatt-hours per day.
  • Construction Practices: TSMC found that U.S. labor and construction practices, including complying with safety standards and dealing with trade unions, were new and introduced delays and complexities.

The Road Ahead

The rapid buildup of data centers and chip manufacturing in the USA, while crucial for the AI era, brings forth a myriad of challenges. From the strain on natural resources and the impact on local communities to the complexities and soaring costs of establishing advanced manufacturing, the “compute is the new oil” paradigm comes with significant hidden and often underestimated costs. Addressing these issues will require transparent planning, sustainable practices, and a balanced approach that prioritizes community well-being alongside technological advancement.

The Challenge Is the Same Everywhere!

These profound challenges are not unique to the American landscape; they are a global phenomenon echoed wherever the digital and physical worlds of AI infrastructure collide. Across Europe, for instance, companies like Scaleway are embarking on missions to build gigawatt-scale “AI factories,” highlighting the intense competition and strategic imperative for nations to secure their own compute power, much like the U.S.. From the colossal power demands in the Middle East and Southeast Asia, where multi-gigawatt deployments are underway, to the universal struggle with cooling high-density racks, the core issues of energy consumption, water scarcity, and technical complexity transcend national borders. The quest to reshore chip manufacturing also reveals global struggles, with TSMC expanding to Japan and Germany, encountering similar hurdles with skilled labor, local supply chains, and construction costs that are often significantly higher than in Asia. Indeed, the global demand for AI compute is so immense that estimates suggest it will add 40 to 50 gigawatts of power demand globally, comparable to the average usage of entire countries, signifying that the planet simply “doesn’t currently have enough electricity to meet all of that demand,” making this a universal problem that requires a coordinated global response.

Resources

This is a list of recent videos on this very interesting topic