What's behind Arizona's data center boom, and what comes next?

With the rapid advancement of artificial intelligence, the world is becoming even more dependent on data centers. But in one community after another, construction plans are being met with fierce opposition.

And one of the leading battlegrounds is Arizona, which already has close to 100 data centers and could nearly double that amount within the next few years, according to a Pew Research Center report. That makes the state the seventh largest market for data centers in the nation.

As data centers continue to proliferate, residents are voicing urgent concerns about energy and water use. And, depending on whom you ask, data centers are either stepping stones to a digital utopia or looming monuments to everything we don’t yet know about AI and the future of resources.

KJZZ spoke with industry insiders to understand the role data centers play in our lives and how that is evolving based on consumer habits and recent AI advancements.

According to Ryan Gruver, a data center is “the core of our digital society.”

“Everything that we do — whether it is watching a movie on Netflix, whether it’s sending an email; your healthcare, airlines — everything runs through a data center,” Gruver said.

Gruver has spent 20 years working in Banner Health’s data centers and also heads the Phoenix chapter of AFCOM, a group of data center and IT professionals. Gruver is not speaking on behalf of Banner for this story.

Basically, he says, everything we do that requires an internet connection — which is almost everything nowadays — creates a digital data point.

Deloitte’s Connectivity and Mobile Trends 2023 survey found the average U.S. home has around 22 devices that are connected to the internet. Most modern vehicles rely on Wi-Fi to run dozens of features, like music streaming, self-driving, live weather and traffic updates.

All of that data lives somewhere. That somewhere is in a data center.

But not all data centers are built the same.

The different types of data centers and who they serve

The smallest and earliest iterations were edge centers, Gruver explained at the Arizona Data Center Alliance’s Building Community Trust in the Data Center Era forum held at the SkySong building in Scottsdale in June 25.

“There is most likely a small edge data center in here that’s most likely only like six pieces of equipment that keeps this place up and running, and it keeps it connected to the rest of the world,” Gruver said.

Russell Smoldon is the CEO of B3 Strategies, an Arizona firm that lobbies for utilities and data centers, among other clients. Years ago, most individuals and businesses’ internet needs were easily served by a single desktop computer tower or small room of servers.

“They only needed a few of them because they were just doing internet, or maybe they’re doing some retail transactions on the computer,” Smoldon said.

By the 2010s, streaming services like Netflix and social media platforms had really begun to take off — along with online shopping. There was a growing need for companies to find somewhere to store all this data, which local commercial real estate developers, like CBRE, were happy to serve, he says.

“There were some guys at CBRE that said, ‘hey, what if we just put a bunch of servers in a building — a big box — and we could, you know, lease it to people?'” Smoldon said.

Companies either looked at contracting their own enterprise data centers or sought additional server space with co-location providers like Iron Mountain or QTS.

Gruver says these enterprise data centers could be as small as two to three houses — or as large as a full-size office building. Many are left unmarked or hidden from most data center trackers like datacentermap.com, because they could be storing sensitive data for airlines, healthcare companies or the government.

“The question is, how many of those enterprises are out there?” Gruver said. “There’s a lot in the state that just, you look at a random building and probably think it’s a warehouse — it’s probably a data center, actually.”

The 2020s marked the next era of data center demands in the state. The COVID-19 pandemic shifted most work and social interactions online, driving up screen time across demographics for years to come.

But the rise of artificial intelligence is now shaping the way new facilities are built, says Smoldon.

“The initial data centers we had were not huge,” he said. “But the fact now that AI takes so much more memory and the ability to compute takes so much more memory and so much transfer of data. It becomes bigger.”

Hyperscaled, you might say. Literally — that’s what they’re called.

“These are the truly big boxes,” Gruver said. “You know, like the Eastmark Corridor, the Chandler Tech Corridor, the Glendale and Goodyear Corridors.”

A hyperscale data center will occupy millions of square feet of land rather than thousands. Inside, there are no fewer than 5,000 computer servers. These campuses tend to come in phases, bringing lots of construction jobs, but also plenty of protest.

The controversial Project Blue data center in Pima County will cover about 13 million square feet.

Outside of Eloy, the La Osa data center would have been the largest proposed data center in the state. Originally slated to span 144 million square feet and 59 server buildings, it is being scaled back 80% in response to protests, but that’s still over 2 million square feet.

How Arizona became an epicenter

The digital economy and the internet don’t exist in one place. So, how did Arizona end up with so many data centers?

It started about 30 years ago, says Smoldon. Before he was at B3 Strategies, Smoldon worked for Salt River Project. In the 1990s and early 2000s, the utility was expanding alongside the Valley’s booming population.

“We were adding substations and 69 kV lines and 500 kV lines, and we were just getting prepared for all this growth,” Smoldon said. “It was crazy boom time, and then the Great Recession hits.”

The housing market crashed, companies fled and SRP’s customer base shrunk overnight.

Smolden says SRP had to find a way to sell this excess energy fast, or risk huge price hikes for everyone else.

“That’s when we said, hmm, there’s this new thing called data centers that store this stuff,” Smoldon said. “We’ve got a couple of them around town. Let’s talk to them and see how would we grow that.”

State lawmakers helped by passing a generous tax break on computer equipment in 2013. Smoldon says that incentive helped grow the data centers necessary for attracting major industries.

“At the time we did this, we just thought we were putting memory in boxes around town,” Smoldon said. “Now, with AI and all the things that go along with that, that’s just kicked it into another level that none of us in the early days ever thought was a real thing.”

Now, economic development leaders happily tout Arizona as the "Silicon Desert” — a play on Silicon Valley — due to the rise in semiconductor manufacturing and peripheral biomedical, aerospace and defense industries.

The Arizona Commerce Authority says 2026 was the state’s most successful year for economic development ever, largely driven by TSMC’s $100 billion reinvestment and other expansions among local tech companies.

What comes next 

But many residents are concerned about this rapid expansion and its impact on water and power supplies, says Andrea Clinton, vice president of the Arizona Data Center Foundation.

Clinton’s job is to help Arizona’s data center leaders connect with community concerns and increase their outreach, something she says the industry has so far failed to do.

“Especially in Arizona, we were fighting to get the data centers to come here because it was a huge economic development initiative, but by the time they were all coming, it was kind of a little too late to keep up with the public perception,” Clinton said.

This isn’t helped by the fact that most data centers apply for development under non-disclosure agreements.

Clinton says these NDAs aren’t in place to conceal resource demands from the public, but rather to prevent creating buzz among competitors.

“They didn’t want people to know that they were coming, so that others would come there as well,” Clinton says.

Regardless of their intent, that secrecy has created a lot of distrust that could take years for the industry to address.

“If they can see online that someone in a rural town in Pennsylvania has dirty water coming out, they want to know, ‘What are you doing about that? How is that not going to be my house?’” Clinton said.

She says projects will continue to be scaled back, delayed or halted until those questions are answered.

In the meantime, leaders in Tucson and Gilbert have begun to demand stronger rules of engagement for data centers in response to community concerns. Even major hubs like Chandler, Mesa and Phoenix — that once welcomed these companies with open arms — have created more stipulations.

The state has weighed in, too. Gov. Katie Hobbs recently signed a three-year pause on the incentives that have fueled Arizona's data center boom, citing concerns over power and water.

And still, the applications keep coming.