Norway's Wealth Fund Passes on Data Center Rush Amid AI Surge

Norway's $2.1 trillion sovereign wealth fund has chosen to steer clear of the rapidly evolving data center market, despite growing global demand for infrastructure supporting artificial intelligence. Norges Bank Investment Management (NBIM) recently unveiled a new three-year real estate strategy, underlining its cautious approach to sectors it views as too volatile for its long-term investment goals according to reports. The decision comes as private equity firms and major tech players ramp up efforts to secure a foothold in data center development.

NBIM currently holds about 3.3% of its assets in real estate, with plans to increase that share to between 3.5% and 7% by 2028. However, data centers will not form a major component of this expansion, according to Alexander Knapp, head of global real estate at NBIM. The fund already has indirect exposure through its stake in Digital Realty Trust Inc. but prefers to avoid direct private investments in the sector according to NBIM officials.

Knapp explained the fund's rationale, saying that the fast-moving nature of the data center industry makes it difficult to accurately assess long-term risks and returns. "I just think that when things are moving really quickly, you can either jump into the stream or you can just watch the fish go by. And I think we're happy to watch the fish for a minute and see what happens," he told Bloomberg as reported.

The Volatility Challenge

The data center sector has become one of the most contested in real estate, with private equity firms and technology companies racing to secure prime locations and infrastructure. The sector's rapid growth is driven by the AI boom, which has triggered a surge in demand for computing power. Major tech firms like Microsoft, Amazon, and Google are investing heavily in expanding their data center footprints, especially in the U.S., where supply chain advantages and energy infrastructure make it a preferred location according to industry analysts.

However, the high capital expenditures and fast-paced technological evolution raise concerns about the sustainability of the current boom. The sheer scale of capital required to build new data centers limits the pool of potential buyers, and there are questions about whether these facilities can keep pace with the speed of innovation. Investors with limited time horizons may struggle to exit their positions, creating uncertainty about the long-term returns of such projects according to market experts.

Strategic Shifts in Real Estate

In addition to avoiding data centers, NBIM is looking to expand its real estate footprint beyond major cities in Western Europe, the U.S., and Canada. The firm plans to explore opportunities in markets like student housing, where demand remains strong and returns are more predictable. "We're trying to be measured in our approach, so therefore, sectors that are volatile, we're very careful with," as Knapp stated.

The fund's current real estate portfolio has underperformed compared to equities and bonds. In the first half of 2025, real estate returned 1.8%, significantly lower than the 6.7% return for equities. As a result, NBIM has been re-evaluating its strategy, with a focus on diversifying its holdings and improving risk-adjusted returns according to financial reports.

What This Means for Investors

For investors tracking NBIM's movements, the decision to avoid data centers signals a preference for stability over speculation in a sector marked by rapid change. While data centers are seen as a long-term growth asset, the risks of obsolescence and high capital intensity make them incompatible with NBIM's long-term investment horizon. Instead, the fund is betting on more traditional real estate segments where it has a better understanding of market dynamics and can manage risk more effectively as the fund's strategy indicates.

Market analysts are watching closely to see if other large institutional investors will follow a similar approach. While some see data centers as a key part of the future, others remain cautious about the sector's maturity and the potential for market overbuilding. The balance between opportunity and risk will likely shape the next phase of real estate investment strategies, particularly as AI-driven demand continues to evolve according to industry forecasts.