In a new analysis, McKinsey & Co. examines whether too much generation is being constructed to supply data centers. Analysts at the consulting firm conclude that for power sector players, the greater near-term risk might be underbuilding rather than overbuilding.
“’Are we building too much power?’ As the growing demand for electricity to supply data centers has come to dominate conversations in the U.S. power sector, and forecasts for data center demand continue to increase, we are hearing that question everywhere,” McKinsley analysts wrote in the July 31 report, “Powering AI: How real is the risk of overbuilding?”
“The question has at least two dimensions: whether players in the data center value chain are building too much data center capacity to support compute, and whether players in the power value chain are at risk of overinvesting based on that build,” the analysts said.
While some signals are mixed, “our analysis suggests that the answer for both dimensions is probably ‘No,’” the analysts wrote. “In fact, for the power sector, we find that a short-term shortfall is likely. For power sector players, the greater near-term risk might be underbuilding rather than overbuilding.”
The report was written by McKinsey’s Humayun Tai, Jesse Noffsinger, and Sam DeFabrizio
with Raissa Dantas.
The report assesses the outlook for U.S. data center power demand and supply through 2035, drawing on data center evolution scenarios and a state-by-state analysis of grid capacity. The McKinsey analysts evaluate how a potential shortfall may be filled and examine implications and opportunities for various U.S. power-sector players.
“Given the uncertainty around future AI demand, players in the power sector are evaluating the risk of overbuilding and stranded assets. The concern is reasonable: even in a low data center demand scenario, the US power sector could add more than 150 GW of power capacity to supply the IT load demand by 2030,” the report said.
But unlike the fiber-optic overbuild of the early 2000s, “which could serve only one purpose (delivering high-speed data), electricity infrastructure serves a broad and growing base of demand beyond data centers (including refreshing aging infrastructure), reducing the risk that new power assets become stranded.”
To better understand the range of possible futures, the McKinsey analysts modeled three scenarios for data center demand through 2035.
An accelerated-momentum scenario assumes adoption grows beyond current expectations as chip and algorithm efficiency improve, and that the industry avoids supply chain shortages. The continued-momentum scenario assumes trends continue roughly on the same trajectory as today, with moderate bottlenecks in supply chains and infrastructure.
And the constrained-growth scenario assumes slower adoption because of supply limitations, regulatory pressure, and public concerns around both data privacy and community impacts of data centers. Community pushback is emerging as a force restricting data center development; four gigawatts of projects were postponed in the first quarter of 2026 as a result of community action.
The power demand trajectory is relatively certain in all scenarios through 2030, given announced projects, secured interconnection queues, and publicly disclosed capital plans from hyperscalers and AI infrastructure providers, the report said.
“Our model suggests data center power demand could grow approximately 27 percent annually through 2030, reaching 121 GW of data center IT demand.”
Beyond 2030, uncertainty increases and the difference across scenarios widens, but all point to slower growth in capacity from 2030–35. “This slowdown reflects a potential saturation in demand for chips and slower AI adoption, as well as a shift from building new data centers to replacing today’s components with more energy-efficient, next-generation chips that add compute per unit of power. For the continued-momentum scenario, we expect a sevenfold increase in data center IT demand by 2035.”
McKinsey said that the massive backlog in load interconnection pipeline requests could be read as evidence of a demand bubble.
“Yet many of these requests are speculative and duplicative: Developers and hyperscalers are submitting multiple requests to see which secures power first, and early-stage developers are trying to secure interconnection rights before selling a project to a well-capitalized party that will do the building and install the IT hardware.”
Demand estimates based on such interconnection requests are likely highly distorted, the report said.
“Indeed, our analysis shows that large-load interconnection pipelines are nine times as large as the 2030 demand in our continued-momentum data center scenario (approximately 84 GW of new IT load, or approximately 120 GW of new total power demand), not including off-grid projects.
Considering only contracted and high-confidence projects (those expected to move forward within the next 12 months) still amounts to a twofold overshoot of our projected demand.”
In the view of the McKinsey analysts, the key question for power sector leaders is how to build for a future in which both demand and the grid’s architecture continue to evolve.
In that future, access to power “may prove to be the scarcest resource, and the most valuable investments will be those that remain useful across a wide range of demand outcomes.”
The ideal environment “would lead players to maximize the value of both power infrastructure and the benefits of load growth for the broader power system. In that context, grid connections will become even more important, as the benefits of load growth -- including the potential to alleviate affordability concerns across the power sector -- can only be realized when that load is integrated into the system.”
