While tech giants are still racing to develop AI models in the virtual world, a new wave has quietly emerged—Physical AI. This is not some abstract concept, but rather a technology that enables machines to truly perceive, interact with, and change the physical world.$Microsoft (MSFT.US)$Last month, the plan for a Datacenter in Ohio was canceled, along with reports that$Amazon (AMZN.US)$Cloud Computing Service is withdrawing some AI Datacenter project initiatives, causing the market to quickly fall into anxiety about whether the Datacenter boom has come to an end.

However, the concerns may be overstated, as there are signs indicating that overall capital expenditure on AI remains strong.

"We continue to see AI deployment in the Datacenter market accelerating, and strong demand signals reinforce our confidence in near-term and long-term growth," said a Datacenter provider based in Ohio. $Vertiv Holdings (VRT.US)$ CEO Giordano Albertazzi stated during last week's Earnings Reports conference call. The company's stock price rose by 22% last week.

Market demand is not retreating but is rather a 'temporary pause.' According to McKinsey's latest model prediction (excluding tariff impacts), the datacenter market is expected to maintain a growth range of 20% to 25% over the next five to seven years, although the growth rate may fluctuate year by year.

"Growth will not be linear," said Pankaj Sachdeva, a senior partner at McKinsey, who studies datacenter development and anticipates fluctuations.

Technology giants reaffirm strong market conditions: demand has not weakened.

Amazon and$NVIDIA (NVDA.US)$reaffirmed last week that the Datacenter market remains strong.

"No significant changes have occurred," said Kevin Miller, Vice President of Amazon Global Datacenter, at a meeting organized by the Hamm US Energy Institute.

"We continue to see very strong demand, both in the coming years and the long term, the numbers will only rise."

This does not mean that the strategic thinking of the market participants has not changed. In just six weeks this year, China’s DeepSeek suddenly emerged, Trump's $500 billion AI-driven Stargate program was announced, and tariff concerns have shaken the market.

"All of this has created a scenario where the datacenter industry, as a whole, has paused for a moment," said Pat Lynch, Executive Director and Managing Director of the Commercial Property company CBRE Data Center Solutions.

"I think this is just a temporary pause; the project pipeline and their channels remain significant, and CBRE continues to execute trades. I am cautiously optimistic about future demand, especially when considering large AI training models."

"What we are seeing is not a retreat in demand, but a strategic reconfiguration," said John Carrafiell, Co-CEO of Global Real Estate Investment Management Company BGO, which manages $83 billion in assets, including a substantial portfolio of datacenter investments. He noted that the most important participants have not retreated, with Microsoft, Google, Meta, and Amazon planning to invest over $300 billion in capital expenditures this year, mainly for AI infrastructure.

Moreover, he stated that this does not include other major participants, such as OpenAI, which is involved in the Stargate project.$Oracle (ORCL.US)$：

"Rather than a bubble burst, it’s a reshuffling in an environment where electrical utilities, fiber, water, and land are scarce and strategically significant. Long-term enterprise adoption will drive AI demand and datacenter demand over the next decade. We haven't even started the first game yet."

Energy bottlenecks: The biggest challenge to Datacenter expansion.

Electricity is the lifeblood of Datacenters. Datacenters require significant power to support computing capabilities and use fans to keep the infrastructure cool. As generative AI shifts from early experiments to enterprise-scale applications, the demand for low-latency, high-efficiency Datacenters close to end-users is expected to intensify.

"The growth of new Datacenters is happening so fast that the grid can't keep up," said Allan Schurr, Chief Business Officer of microgrid developer Enchanted Rock. Three years ago, a large Datacenter required 60 megawatts of power—enough to power 20,000 households, but now he states that new Datacenters supporting various AI applications need 500 megawatts or more.

According to Datacenters.com, 3% of the world's electricity is now consumed by Datacenters.

Schurr stated that Enchanted Rock's data shows there is enough power to meet demand most of the time. Of the 8,760 hours in a year, the grid is under pressure only during a small portion of that time.

"If we can alleviate the demand on the grid during those 100 to 500 hours, long interconnection delays can be shortened."

In addition, changes in tariffs will create new cost pressures on AI and Datacenter supply chains.

"These disruptions will increase Hardware costs, impact procurement strategies, and require companies to rethink their long-term procurement models," said John Archer, Senior Delivery Director and Supply Chain Transformation Lead at Slalom Consulting.

One factor remains unchanged: computing power is currently very expensive, and AI Software and Hardware require more computing power.

"The explosion of AI presents a challenge for Datacenters to find more efficient solutions, as AI requires such immense computing power, unlike anything we have seen before."$POET Technologies (POET.US)$CEO Suresh Venkatesan stated:

"While one Datacenter project may encounter obstacles, Other projects may emerge because there are no signs of a slowdown in demand for connectivity."

Editor/Rocky