Overlooked Opportunity? Goldman Sachs: The Market Seriously Underestimates the Explosive Potential of European Data Centers

Europe may be becoming a significantly underestimated pole in the next wave of global data center construction.

According to the Chase Trading Desk, Goldman Sachs' latest research report points out that driven by multiple factors such as the demand for AI computing power, localization of cloud computing, and significant improvements in the policy environment, the construction speed of data centers in Europe may far exceed market expectations.

The report shows that according to the European Data Centre Association (EUDCA), by 2031, the capacity of data centers in Europe is expected to increase from the current approximately 15 gigawatts (GW) to about 40 GW, with the market size approaching nearly three times the current level.

This judgment implies that European data centers are not "slowly catching up," but are entering an accelerated phase that is underestimated by the market.

An Underestimated Scale Judgment: European Data Centers May Welcome a "Preemptive" Explosion

The core change in Goldman Sachs' judgment is not just an upward revision of scale, but a significant advancement in the construction pace.

The European Data Centre Association's forecast of a 40 GW capacity by 2031 corroborates Goldman Sachs' previous estimate of approximately 60 GW IT capacity by 2035 based on benchmarking against the U.S. market. It is noteworthy that the expected new capacity in the next two years has basically entered the construction phase, while projects within 3-5 years are also mostly in the late development stage, with high visibility and certainty.

Against this backdrop, Goldman Sachs believes that the construction of data centers in Europe is not the "linear ramp-up" generally expected by the market, but is more likely to exhibit significant preemptive and concentrated release characteristics, thereby having an earlier and more direct impact on the power system and related asset pricing.

Structural Increase in Power Demand: Data Centers May Become the "Third Force"

The expansion of data centers will have an impact on the European power system that goes beyond just marginal demand increases.

Goldman Sachs estimates that considering the project implementation cycle, data centers are expected to drive an average annual growth of nearly 1.5% in overall electricity consumption in Europe from 2027 to 2031. This increment does not yet include the electricity demand brought by electric vehicles, electrification transformation, and GDP growth.

This means that European electricity demand is being driven by three main lines: first, the ongoing electrification of transportation and industry; second, the clean energy substitution in the context of energy transformation; and third, the data center load centered around AI and cloud computing.

From Core Countries to Marginal Markets: Highly Dispersed Data Center Layout

Unlike the high concentration of data centers in a few regions in the United States, this round of expansion in Europe shows a clear geographical dispersion characteristic.

By 2031, the newly added data center capacity will be widely distributed across major European economies: Germany and the UK will have the largest scale, each around 4 GW; the Netherlands, France, Ireland, Italy, Spain, and Norway will follow closely, each with 2 GW or more; new capacity in countries like Denmark, Sweden, Finland, and Portugal may also reach 1.0-1.5 GW.

This distributed pattern means that investment opportunities are not concentrated in a single country, and it also raises higher requirements for cross-regional transmission capacity and grid coordination.

Policy Turning Point Approaches: The EU May Actively "Ignite" Computing Power Investment

The policy environment is becoming an important driving force for the construction of data centers in Europe Goldman Sachs pointed out that the European Union is expected to release the "Cloud and Artificial Intelligence Development Act" by the end of March, providing clear and executable policy signals for investments in local data centers and AI infrastructure in Europe. In addition, the planned 5 to 7 AI super factories are also expected to further drive the demand for computing power and the pace of data center construction.

At the same time, another key policy is the "Grid Package Plan," where Europe is trying to create a more efficient "super grid" by accelerating grid connection approvals and promoting the construction of cross-border transmission networks to alleviate the power bottlenecks caused by the concentrated operation of data centers.

The Power Industry Welcomes Prosperity: Power Generators and Equipment Manufacturers Benefit

On the supply side, the challenges are also clear.

Goldman Sachs noted that accelerating the construction of renewable energy and new gas power plants typically requires a construction cycle of 3 to 5 years. During this period, the rising power demand from data centers will first tighten the power markets across Europe, thereby temporarily boosting the profitability of traditional gas power plants.

At the same time, higher electricity price expectations may also improve the pricing and return levels of currently under-construction renewable energy projects. Goldman Sachs believes that this environment is favorable for power generation companies such as RWE and Solaria (both rated as buy) and also helps enhance the investment attractiveness of other renewable energy developers like EDPR.

The data center construction boom will also transmit to the upstream equipment sector. As demand may outpace supply in the short term, Goldman Sachs maintains a buy rating on Siemens Energy. In addition, the market seems to still underestimate the necessity of the continuous upgrade of Europe's high-voltage transmission network, which will bring long-term tailwinds to grid operators such as Elia and National Grid