As FWR shows in a range of interviews with wealth managers, they see artificial intelligence as a driving force for market performance. But there is a hurdle. After New York suspended construction of major data centers due to their high consumption of energy and water, it raises questions about the pace of AI growth in some jurisdictions.

(Editor's note: While some US states are pushing back against data centers, it is clear that investors are fretting about how realistic valuations of AI-related stocks are. Today, a selloff in semiconductor stocks extended, amid evidence that China's advanced chipmaking capabilities are significant. US technology-heavy Nasdaq 100 futures fell 0.6 per cent, while in Asia, a 7.5 per cent slump put a Bloomberg gauge of semiconductor shares on course for its biggest decline since April 2025, according to Bloomberg today. One way or the other, the AI trend is going to involve a bumpy ride. A point to consider is that while some countries might restrict data centers, others will use it as an excuse to seize a competitive lead.)

Data center construction has been surging recently due to demand for processing power from artificial intelligence firms. But in view of their consumption of scarce resources and a public backlash, New York governor Kathy Hochul signed an executive order this month prohibiting the construction of major data centers for a year. New York was the first US state to make such a move.

A number of farmers in the US are also raising red flags on the potential drain on local resources that the data center boom poses to rural regions, using farmland, electricity and water needed to raise livestock and grow crops. 

David Harrison, fund manager of the Rathbone Greenbank Global Sustainability Fund, told this news service that he believes that data centers could become an increasingly political issue in 2026 and beyond. “Some of the largest planned sites will require over 1 gigawatt of power and have significant water usage demands. The sheer scale of capital involved (over $700 billion invested in new data centers in the US in 2026 alone, according to Moody’s) is staggering and creates both opportunities and risks for investors,” he said. “We think that it only accelerates the need to invest in grid infrastructure, renewable power sources and energy storage solutions. We are also seeing strong demand for companies offering solutions linked to water infrastructure and HVAC equipment.”

“The move in New York could be replicated across a number of states, particularly given environmental concerns and rising energy bills for consumers. Increased regulation or political intervention appears a strong probability,” Harrison continued. “This may slow down the roll out of data centers which could create uncertainty for the speed of AI adoption. On the other hand, it’s important to remember that new technology and approaches to improving the efficiency of a data center (cooling, power usage) are continually evolving, which could also bring a new angle to the debate.”

Katsunori Ogawa, chief portfolio manager for Sakigake High Alpha, SuMi TRUST, believes the challenges are unlikely to fundamentally undermine the growth trajectory of AI-related investment. “The more important question is not whether AI demand itself will continue to grow, but whether power supply and infrastructure development can keep pace with the speed of AI adoption. Looking ahead, competitive advantage is likely to depend not only on greater computing power, but also on improvements in energy efficiency and cooling efficiency,” Ogawa said.

“We believe this changing environment is likely to create new growth opportunities for Japanese companies," Ogawa continued. “As AI adoption accelerates, the importance of energy-saving technologies, advanced power management systems, next-generation materials, and power semiconductors is expected to increase significantly. These are all areas in which Japanese companies have developed strong expertise over many years, and the benefits of AI investment are therefore likely to extend beyond semiconductor chips themselves to the broader supply chain that supports them.”

Meanwhile, Euan Ker, senior responsible investment analyst at Aegon Asset Management, thinks that a growing backlash against the environmental footprint of hyperscale data centers is starting to materially affect the pace and location of build-out. “This is not an isolated development,” Ker told this news service. “Over 70 jurisdictions globally are now considering or implementing restrictions, ranging from moratoria to tighter permitting rules and cost-allocation mechanisms,” Ker said. “Public opposition is also rising, with support for new data center construction in the US notably low. Combined, these factors are beginning to reshape project timelines, siting decisions and economics.”

“While demand for AI-related infrastructure remains strong, delivery risk is increasing – reflected in recent project cancellations and expectations that only around half of planned US capacity may be delivered on schedule in the near term,” Ker continued. “Against this backdrop, the quality of operators’ energy strategies is becoming more important in securing approvals, particularly where they address grid impact and renewable integration.”

“From an ESG perspective, the debate highlights a broader transition challenge: balancing digital infrastructure growth with local environmental and social constraints,” Ker added. “For investors, differentiation is likely to emerge between developers that can demonstrate credible, system-aligned energy solutions and those more exposed to regulatory and community pushback.”

Mark Brennan, portfolio manager of Guinness Real Assets Fund , also highlighted that data centers are resource hungry and New York will not be the last to impose a mortarium, which could delay the development of AI. “There will be pockets where deployment is delayed. But where I come at it from, as a real assets investor, I am looking at the listed landlords that manage the data centers. This sort of news is interesting for them as it puts more scarcity into the market. As the landlord, it gives you pricing power,” he continued. “This is actually not bad news for them. We are seeing increased scrutiny and caution on where data centres will be and on the environmental impact. But that tilts things in favor of the existing landlords,” he added. “So there’s two sides of the coin in terms of what it means for investors. Since it was announced, we have seen positive share price performance for some of big data centres REITs that we hold.”

“Also I think the data centers are becoming more environmentally efficient. AI clearly also has the ability to improve productivity. The incentives are there for developers to become as environmentally as possible,” Brennan said. “NY hasn’t had a direct negative impact on my investments. Growth in AI from a real asset perspective is a major tailwind and driving increases in earnings growth. It is a major source of growth for my sector and it has a long way to run. I remain lent to AI infrastructure opportunities. It is important,” he added. The firm recently acquired Foresight Capital Investment where Brennan co-developed Foresight’s real asset range.

Mikhail Zverev, co-manager of the Amati Global Innovation Fund, said that AI data center build-out is the biggest capital investment boom in a generation. “This boom is stretching the whole supply chain and ecosystem (literally and metaphorically), from semiconductors to construction capacity to availability of energy and water. No wonder SpaceX is contemplating data centers in space,” he said.

“We have found the most compelling asymmetric risk/reward in electric cables and grid construction. We own Prysmian, Italian listed global leader in high voltage cables, and MasTec, a leading US energy network construction specialist. Even if the pace of AI capex slows, they have years of work to do in modernizing electric grids to improve reliability and resilience and serve growing electrification demand across the economy, beyond data centers.” Zverev added.

For more coverage on the various implications of AI, such as on client confidentiality within professional services relationships, see an example from FWR here.