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This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news there. Listen@schwab.com WashingtonWise.
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Welcome to Tech News briefing. It's Friday, February 20th. I'm Patrick Coffey for the Wall Street Journal. The AI revolution is no longer just a software race, and hyperscalers are hurrying to put the right infrastructure in place. Data centers are a booming business and their rapid expansion is being felt across industries. On today's show, we're taking a look at two. First, in the battle for AI dominance, every engine of the economy is getting recruited into the fight, and that includes literal ones made for jets. We're unpacking how it all works then, in some regions of the country, big tech is buying up a lot of land to build data centers, and homeowners aren't happy. We're diving into how these new developments are unfolding and where they might go next. But first, tech giants and their developer partners are rushing to set up these massive data centers as fast as they can. And that translates into an unprecedented demand for energy. One of the most effective and convenient sources on hand turns out to be jet engines, which can be converted into turbines powered by natural gas. The Journal's Jinju Lee covers the energy sector for our Herd on the street column, and she's here to tell us more about what is quickly becoming its own little known, but very profitable AI adjacent industry. Jinju, how exactly do jet engines help power these AI data centers?
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Yeah, so just to step back a little bit, there are these heavy duty, really efficient large turbines out there, but they're such a big, big backlog for those. We're seeing that jet engines can be converted into natural gas fired power turbines. And in fact, a lot of major power equipment manufacturers make what are called aeroderivative turbines, which are modeled after these very jet engines. What we're seeing now, though, are companies converting jet engines into aero derivative turbines because the demand is that high.
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B
Wow. So then we have some that are refurbished that were actually used in jet engines, and some that are designed specifically for this purpose.
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C
Exactly.
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B
And I'm trying to imagine how that looks like just sort of like rows and rows of jet engines essentially just kind of churning.
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Yeah. Although aeroderivative turbines are considered to be pretty like space efficient because they need to be on a jet, they have to be pretty small. And compared to some other types of equipment out there, they're also cleaner Burning.
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And these are serving as alternatives to other power sources like, I don't know, nuclear energy or.
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Yeah. So natural gas is sort of seen as a preferred power source for data centers. Nuclear takes a very long time to build. Solar and wind equipment is more available, but they are intermittent, so they're only available when it's sunny or windy. Natural gas is sort of the base load. It can be always on as long as there is fuel available. So these jet engines turned aero derivative turbines are filling a need that the existing natural gas power equipment cannot fill.
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And how do we convert a jet engine into a turbine?
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So one of the companies that's doing this, they're called FTAI Aviation, they mentioned that the design process itself took about a year and a half, but the conversion process itself is pretty quick. It's 30 to 45 days. And the two main things that need to happen are the fuel nozzle has to change so that it goes from using jet fuel to natural gas. And then the second change is switching out the fan in the front of the engine from a very large fan to a smaller one.
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B
You also reported that there's a shortage in the jet engine market. Yeah, why is that?
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C
It was one of those pandemic disruptions where after the pandemic, the demand for flying in general recovered faster than the industry anticipated. So there was a pullback in jet engine manufacturing, and that wasn't able to accommodate the snapback in demand.
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B
And that seems like it could possibly create some tension in the market, given that the anticipated growth in data centers is not slowing down anytime soon. Right?
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C
Yeah. So if even more jet engine parts go into making power turbines than serving the aviation industry, then that could worsen the supply shortage in the jet engine market.
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B
Right. I mean, there's this demand for engines outside of their normal use. It's kind of created this entire secondary market.
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C
Yeah. It's not just jet engines. There's manufacturers of other types of power equipment that are now refocusing their efforts. It's very interesting how we're seeing all kinds of manufacturing capacity sort of repurpose and become creative in the face of this skyrocketing demand from data centers.
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That was WSJ Heard on the Street. Columnist Jin Joo Lee. What do you think about the AI data center boom? If you're a listener on Spotify, leave us a comment with your thoughts. Coming up. How would you like to be lulled to sleep every night by the low ambient hum of an AI server farm? That's becoming a reality for more and more people in Certain parts of the US we're taking a look at the shift after the break.
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No.
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No third parties hire and pay teams in 130 plus countries operate like a local everywhere. Visit D E-L.com WSJ.
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Across the country, housing developers are finding themselves locked in a bidding war with a new competitor, big tech companies. These tech giants say the data centers they're building will provide local jobs and help the US Maintain an advantage in the AI race. But the building boom is emerging as another potential contributor to America's housing shortage. And with the land rush showing no signs of slowing down, some housing developers and homeowners are not so keen on their new neighbors. Here to tell us more about this growing phenomenon is WSJ reporter Will Parker. Your story goes into detail on the scale of data center construction in certain areas of the country. Where exactly is this happening?
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The big data center hotspots in the US Are northern Virginia, but also Georgia, especially areas south of Atlanta, and Texas around greater Dallas area. And the Midwest is also a big area. Illinois has a big boom in data center construction. So it's only in a handful of places where it's super, super active, but in those places, it's the dominant form of development right now.
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B
Can we say how this is affecting housing prices in these regions?
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I think it'd be difficult to draw any direct connection to housing prices. But when you think about the housing supply, it's clear that in some of these areas that we're talking about where you're seeing land that was either zoned for residential flipping over to data centers or is the kind of land that would be attractive to a housing developer if they could buy it and rezone it for housing, you know, to the extent that those instead become data centers, that limits the future pipeline of supply of homes. Right. And means that the future supply is lower than it might be otherwise. The scale at which that is becoming a problem is not something we have a good sense of. But we do know that more and more land is turning over from residential to data center use. After the story came out, there's a consulting firm called John Burns that has been surveying land brokers about this, and they found that a third of land brokers nationally saw some form of residential land flip over to data centers in just the last year. And in areas like the Northeast, which includes Virginia, in this case, it's much more common than that.
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B
So in the story, there was one anecdote where the developer knocked down the entirety of a 55 home subdivision after paying about a million dollars per house, how often do we see these crazy incidents like that?
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So cases of buyouts at that scale, I don't know that there are many. There's certainly many cases of homeowners who have a decent piece of land along with it selling to data centers and pockets. And I've certainly heard just since I wrote the story from people in real estate business say, I'm aware of a subdivision of 200 homes that's in talks to potentially sell to a data center developer because they're kind of walled in by other data centers. And if such a company is willing to pay a lot of money for their houses, willing to consider it. So that level of buying up a subdivision that's already been built, there's not a lot of. But you could see that there might be more of it. Just considering the value of land in some of these areas where data centers are building and where there's the power infrastructure that makes them attractive to build there.
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And we just know, like, I mean, anecdotally, the demand for these data centers doesn't seem to be going away anytime soon.
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No, it's really high. I mean, if you look at existing data centers, they're like 99% occupied. So the signal that sends to the market is that we should build more of them because we can fill them with Google or Microsoft or other tech tenants. How long that continues to happen is unclear. And of course there's a lot of political pushback to their development now and a lot of laws that are changing, but the demand is still there.
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And this is a very broad question. How do homeowners feel about these data center projects cropping up near where they live?
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I think it depends on the scale. I think, you know, like an area that has like a couple of data centers that are a couple miles away, like, most people don't care that much. Some people certainly do. It's when an area becomes like a magnet for data centers and there's, you know, several of them, dozens of them, and they're, you know, encroaching really closely on, you know, their subdivision or where they live that you see people more upset about it. You know, it's very different than like suburban sprawl where you have retail, right? People may not love it, but it's useful, right? You have like an interaction with it. You go to a store that you might have something that you like, actually want to buy there. You can't. You don't interact with a data center. You don't get any use for it. You don't go shopping there on Saturday.
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Do we have residents protesting this at all?
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Yeah, big time. I mean, there's, you know, very organized groups of activists in many of these places that are the ones showing up to planning commission meetings and local government meetings of all kinds, sometimes filing lawsuits to try to block rezoning for data centers. There's elected officials, I would say increasingly so in places like Virginia that have been voted in, at least in part based on the concerns of people who are opposed to the data center construction. So it's a very visible contingent of people that are opposed to a lot of this construction.
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That was WSJ reporter Will Parker. And that's it for Tech NEWS briefing. If you're a listener on Spotify, be sure to leave us a comment. Today's show was produced by Julie Chang. I'm your host. Patrick Coffey. Jessica Fenton and Michael Lavalle wrote our theme music. Our supervising producer is Katie Ferguson. Our development producer is Ayesha Al Muslim. Chris Zinsley is the deputy editor and Falana Patterson is the Wall Street Journal's head of news audio. We'll be back later this morning with your TNB Tech Minute. Thanks for listening.
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