Construction / 4 min read
The Texas construction industry is set to reap the rewards of the recent AI boom. With the announcement of the $500 billion Stargate AI infrastructure project and dozens of other major data center developments, contractors have an unprecedented opportunity, but are they ready to handle the potential challenges in workforce, supply chain, and regulatory compliance?
The Opportunity for AI-Based Construction
Texas has emerged as the nation's second-largest data center market, trailing only Northern Virginia. From 2023 to 2024, Central Texas saw data center construction jump from 88 megawatts in the second half of 2023 to approximately 464 megawatts in the first half of 2024—a four-fold increase.
The Stargate project, as many people have heard about by now, represents the largest AI infrastructure investment in history. The Abilene facility alone will span 875 acres with 10 initial buildings expanding to 20, totaling about 4 million square feet. This single project will create thousands of construction jobs and 357 permanent positions.
But Stargate represents just the beginning. Other major AI-based construction projects include:
- Meta's $800 million Temple facility spans 900,000 square feet.
- Energy Abundance's data center will be over 50,000 acres near Laredo in what it being called, "Data City".
- EdgeConneX is set to start construction of its $1.44 billion campus in Cedar Creek this month.
- DataBank's Red Oak development will include eight buildings totaling 3.4 million square feet.
- Serverfarm's $137 million Houston project that started last month and is set to end in July 2026.
While the above projects are either underway or about to be, analysts predict that more AI-based construction projects will be built over the next five years. The demand for energy is increasing at a rapid pace and the tech industry needs more data centers to meet this demand.
The Potential Challenges for AI-Based Construction
The million and even billion-dollar projects seem promising, the path to capitalizing on this opportunity is far from easy. Contractors will face a slew of challenges that threaten to sideline and delay projects. Understanding and addressing these challenges could determine which contractors thrive and which miss out.
Regulations
Texas Senate Bill 6, effective June 20, 2025, fundamentally alters how large electricity users connect to the grid. For contractors, understanding these requirements proves essential for project planning and client advisory.
The law mandates that any facility using 75 megawatts or more must pay a minimum $100,000 study fee for transmission screening. These large loads must also accept mandatory curtailment during grid emergencies – a significant operational consideration for data center clients. Facilities connecting after December 31, 2025, face even stricter requirements, including equipment installation for load curtailment before interconnection.
For contractors, this means additional compliance costs must be factored into project budgets. The Public Utility Commission will spend $2.64 million implementing these changes through 2027, but the actual costs fall on developers and their construction partners. These significant new compliance obligations will affect project timelines and budgets.
Electrical Grid Capacity
The explosive growth in data center development has created an infrastructure problem. ERCOT reports 136 gigawatts of interconnection requests from large power users – up from just 41 gigawatts a year ago.
As a result of these current energy constraints, there is a fear that a substantial portion of proposed data centers will never be built. This could already be happening. Microsoft recently abandoned 2 gigawatts of capacity reservations in Texas. The average wait time for grid connection studies now exceeds three years nationally, though ERCOT processes requests somewhat faster.
Workforce Shortage
Recently, there have been growing concerns over the future numbers for the construction workforce and the workforce's ability to meet the projected demands for large-scale AI-based projects. On a national scale, some experts forecasted the construction industry would need to add over 450,000 in 2025. As for Texas, there is a large workforce, and even job growth in some areas, like Dallas. But the fact remains that a large portion of the Texas construction workforce is comprised of immigrants. The recent immigration policies have generated concern that the future of the construction workforce will be significantly impacted.
Tariffs and Supply Chain Disruption
Newly enacted tariffs create a potentially significant disruption to AI-based construction projects. With a 25% tariff on steel imports and escalating duties on other critical materials, construction costs face immediate pressure. Industry analysts predict these tariffs will ripple throughout the entire data center ecosystem, affecting everything from structural frameworks to power infrastructure.
Electrical components essential for data center operations are one of the hardest hit by the tariffs. The U.S. imports 80% of its large power transformers. These transformers, crucial for stepping voltage between power plants and data center campuses, already face potential lead times stretching up to two years. With steel tariffs now affecting transformer cores, these delays could extend even further.
For semiconductor components powering data center servers, the situation proves equally challenging. With approximately 80% of chips imported and steep tariffs on Chinese imports—54% in some cases—hardware costs face unprecedented increases. NVIDIA's AI-driven GPUs, already in short supply due to the AI infrastructure boom, could see further price hikes and availability constraints. AMD and Intel face similar pressures, with tariffs affecting both imported components and the rare earth elements essential for chip fabrication.
The Takeaway
The AI boom represents a significant opportunity for contractors in Texas. But to capitalize on this opportunity there are still significant hurdles contractors should keep on their radars. First, the Texas energy grid has to undergo significant upgrades to meet the increased energy demand. Second, the size of the construction workforce will have to increase year-on-year to meet the forecasted data center projects. Third, companies will have to be vigilant in monitoring regulatory changes that may impact costs or time. Fourth and finally, contractors should continually look for shifts in economic factors— e.g. tariffs—impacting supply chain logistics.