What are data centres?

What are data centres?

You may have noticed data centres popping up in the news a lot lately - whether it’s in the context of artificial intelligence’s rise, national infrastructure, or even, in more recent days, the Iran war. So in this Squiz Shortcut, we’ll take a look at:

• What data centres are

• What they’re used for

• And why some experts have concerns about them

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Squiz the Shortcut

Let’s start with what data centres are…
Essentially, they’re big warehouses for computing power. They’re not much to look at - just rows of big towers, sometimes with lights, and they vary in scale and power. They’ve been around for a long time, but construction of them has been ramping up as artificial intelligence and large language models - generative AI like ChatGPT or Claude - have become popular.

Why are they in the news?
Data centres have become a talking point in the ongoing war in the Middle East following Iranian drone attacks on 3 centres run by the tech giant Amazon in the United Arab Emirates and Bahrain. It’s put the topic of data centres squarely back into the headlines, but they’ve been in the news more and more with many governments signing deals to have them built in their countries with promises that they’ll create jobs and infrastructure. But while they come with dollar signs, they’re also controversial…

Why is that?
Because they can take up a lot of space and they need a heap of energy to run. For this shortcut, we’re going to focus mainly on the data centres that are specifically built for AI - like the Fairwater data centre Microsoft built in the US state of Wisconsin. That one was built specifically for training AI programs and LLMs. It’s over 100,000 square metres in area and Microsoft describes it as being “built to work as one massive AI supercomputer”.

How does it operate?
The company has connected hundreds of thousands of Nvidia processing chips - known as Graphics Processing Units, or GPUS. AI needs powerful computing chips to work, and in this case, Microsoft has essentially built a warehouse that connects hundreds of thousands of them together. An AI-specialist chip needs a lot more than a regular computer chip - as much as 4 times the power. So that particular data centre needs a lot of space, and a lot of power - and it’s just one example. There’s around 12,000 operational data centres around the world, and around 314 of them are in Oz.

How much do they cost?
They’re expensive to build… In 2025, the average facility cost US$220 million, but mega-campuses like the one we just mentioned cost much, much more. Amazon spent over US$100 billion in 2025 in data centre construction - that’s around the entire gross domestic product of Luxembourg or Costa Rica. Microsoft spent US$80 billion, and Meta spent US$65 billion.  

Why are they spending so much money?
It’s driven by a number of things, but chief among them is that, as AI becomes more and more integrated into our daily lives, companies that control the power to produce AI will only make more money out of them. It’s sort of an arms race.

What do you mean by that?
Over time, as consumers and businesses pivot more and more towards using artificial intelligence, they’re going to need to pay someone to use their computing power to do that. And that’s where these big tech companies are hoping their massive data centres will give them an advantage. So, we’re essentially renting their computing power in some cases. Some companies, like Meta - owner of Facebook and Instagram - have built their data centres more for their internal use. And of course, none of these companies wants to be the one that falls behind… 

Is Australia in the race?
Yep, we’re as much a part of it as anywhere else. Earlier this month, AI company Anthropic announced it’s setting up businesses and looking to invest in AI data centres here. In addition, Amazon is investing US$20 billion in data centres across Australia. It’s all about trying to service the increasing demand for artificial intelligence. 

That’s good for our economy, right?
On the face of it, the announcement of billions of dollars of investment into Australian infrastructure might seem like a win. But it’s not quite as clear-cut as that…

Why are there concerns?
So the way we’ve described data centres - hundreds of towers of computing power sitting quietly, humming away in an office building or a warehouse, might seem unobtrusive to our daily lives. But all of that computing power needs lots of actual power to run, and all of those computers generate a lot of heat that needs cooling down…

How does that happen?
Some are cooled through air conditioning, which in turn needs even more energy to run. Others are water-cooled, via pipes funnelling huge amounts of water through the facility every day to absorb heat and keep the building cool… So wherever these data centres are, they use up a lot of the local power and water. 

What impact does that have?
That can put pressure on the grid for the communities in which they’re located. One example of that is in Ireland’s capital city of Dublin where there have been reports of rising power and water prices where data centres have been built … 

So, what is the environmental impact of data centres?
Experts say it’s huge… Here at home, our energy market operator reckons the amount of electricity used by data centres is expected to outpace that used by electric vehicles by 2030 - that’s 4 years away. The significant amounts of electricity and water these centres need to run has led to an ongoing discussion about whether AI usage more broadly is bad for the environment. Then there’s the economic effect…

What’s the economic impact?
While these data centres are being constructed, they employ a lot of people and often from the communities where they’re being built. That all sounds good, but after they’re finished, they employ very few people, because it doesn’t take a big staff to keep a big warehouse of machines running. Money aside, another big issue that’s emerging is the challenge of keeping these huge structures and their valuable contents secure…

Can you explain that a bit more…
Those data centres that we mentioned earlier in the Gulf States became military targets. To give you some background: In May last year, US President Donald Trump announced that a multi-billion dollar AI data centre would be built in Abu Dhabi in partnership with tech companies including OpenAI and Nvidia. So that region seemed like it was going to be a centrepiece of AI investment, but that made it vulnerable to attack…

How so?
Iran claims that AI was being used to aid the US in the war and they targeted them. The US Secretary of War, Pete Hegseth, has been talking about making the military AI-first, and there are many reports of AI being used heavily in this particular conflict. If that’s the case, going forward it turns these massive data centres into strategic military targets. 

And that brings their security into focus?
Sure does… The cost of building these things and keeping them operational is already enormous. And many of them are built in areas where lots of civilians live. If they become essentially military facilities, their security and safeguarding them against missiles, drones and other attacks will become a huge consideration in how and where they’re built. That could mean that the companies building them look to traditionally more secure countries with stable governments to try to protect their investments.

Countries like Australia, for example?
Bingo… It’s something Tech Council of Australia Chair Scott Farquhar has been pushing for. He reckons Australia has an opportunity to position itself as a major data centre hub for Southeast Asia and the broader Asia-Pacific region. He says we’ve got the green power through solar and wind to offset the energy needs, and that our stable rule of law and the land we have available make us a good option for foreign governments and businesses to store sensitive data. He also says it’d create thousands of jobs… 

Is that a possibility?
Building them here is, but Farquhar wants to go even further and allow big companies to train their AI models on our soil. There’s a few hurdles before that could happen - one of them being our copyright laws which would need to be relaxed.

What’s that about?
Unlike the US, we don’t have a broad ‘fair use’ exemption that AI companies can easily use to justify training on copyrighted material like our books and news stories. And even foreign books and news stories can’t be ‘ingested’ into AI on our soil because our law works on location rather than the origin of the text - and tech companies don’t want to get sued. 

Is it on the horizon for us?
Changing our copyright laws isn’t currently something the federal government is looking to do - but these discussions around AI and the opportunities/challenges it presents aren’t going anywhere. And now when data centres crop up again in the news or at your next dinner party, you’ll know exactly what they are and you can lob in some fun facts…

Onto our Recommendations

Listening: This episode of The Daily from the New York Times discusses the data centre boom happening in rural communities throughout the US and what happens when AI comes to town… 

Reading: This article from the ABC looks at how Amazon’s data centres in Bahrain and the United Arab Emirates were helping the US to choose targets in the war, and then became a target themselves…

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