TRG | The Bottom Line – 10/3

Amid TRG’s quarterly discussions with key surety and contractors, the message regarding data center/AI-value chain build out is clear: the size and scope of data center work and the consequential power investment needed to support these data centers is staggering. As one national surety contact shared with TRG: “Most people we work with have pipelines of work for the next 2-3 years, with data center-exposed clients having 5 years of work.” The boom in data centers (both so far and in the coming years) is putting an intense load of stress on all supporting stakeholders – quality of labor, equipment, power, water, etc. Water is a major issue in the southwestern states now, but our contacts foresee this becoming more of an issue in the midwestern/mid-Atlantic states, too. Industry contacts share they have seen solar/wind projects drop off precipitously, and while there is growing interest in nuclear, the concerns are: NIMBY, length of time from permitting to construction to being operational, and the priorities of the next administration, as well as not enough skilled operators of nuclear plants. The market for electrical and mechanical subcontractors is unbelievably tight. As TRG discussed this week on CNBC, one of the industries that stands to benefit is the heavy materials industry (click here). Martin Marietta Materials (MLM) gave a great example of its involvement in the AI/tech build out – MLM sold a 2,100 acre depleted sand and gravel sit for nearly $100MM to build a giga factory and benefited not only from the sale of the land but also by supplying aggregates, cement and concrete for the gigafactory build out. Vulcan Materials (VMC) last quarter said it is serving a number of data center projects and actively discussing green lit projects totaling over $35B. Finally, CRH (CRH) this week at its investor day highlighted opportunities to capitalize on the AI/data center build out not only through its heavy materials exposure but also its growing $1.6B U.S. water infrastructure business.