US data-center boom radiates through factory supply chains

Now, artificial intelligence is its new frontier.

The Waukesha, Wisconsin-based company will spend $250 million by the end of next year to equip multiple factories to make beefed-up versions of its generators for data centers. The order backlog for those machines already stands at $1.6 billion, and the company expects to add about 1,000 workers — a 10% increase in its headcount.

"The question on everybody's mind is how long this build-out will go," CEO Aaron Jagdfeld told Reuters in an interview.

Other winners in the race to build new data centers include manufacturers of cooling systems, electrical transformers and construction machinery. Demand quickly filters out to all those companies' suppliers: Makers of everything from wire cables and pipes to cement and the massive prefab metal walls used on the buildings feel a tailwind from AI.

Lucian Boldea, CEO of Timken, an Ohio-based maker of highly engineered steel bearings, said data centers add another leg to the growth he's seen in orders from traditional customers such as in the defense and aerospace sectors.

"Those data centers need massive buildings, roads, gas turbines — that all requires some of our products," he said.

There are signs the boom is helping lift the larger manufacturing sector. U.S. factories added 5,000 jobs in July, according to the Labor Department, bringing the total for the year to 31,000. That trend is a reversal from last year, when factories cut 113,000 jobs. To be sure, other forces are at work, such as a surge in construction of semiconductor plants.

A separate measure from the Institute for Supply Management showed U.S. manufacturing activity hit the highest level in more than four years in July. The Federal Reserve also reported Tuesday that the manufacturing output index increased in July to its highest level in more than four years.

Yet the mood among many producers remains gloomy, according to the ISM survey, highlighting the split between booming niches and many other parts of manufacturing.

The division even shows up inside companies. Demand for Generac's home generators, for example, remains soft as the housing market struggles. U.S. consumers also face high prices for food and gasoline, discouraging big-ticket purchases like backup power.

Jagdfeld said he sees a virtuous circle forming. As everyone uses more AI — including companies like his — the demand for data centers will continue to grow, he said.

The danger of a bubble

President Donald Trump often says his policies are unleashing a new American factory boom, which reaches far beyond a few sectors like AI. However, his administration's shifting tariffs also were blamed for holding back some factory expansions, which often depend on imported machinery.

"This strategy is yielding results, from trillions in manufacturing investments to growing industrial output across key industries and sectors, including pharmaceuticals, steel, aluminum, and semiconductors," White House spokesman Kush Desai said.

One question is whether manufacturers can keep pace.

Wood Mackenzie, a global consultancy, projects the electrical equipment market tied to U.S. data centers will surge from $33 billion in 2025 to $66 billion by 2030.

"Data centers are fundamentally different from any load the electrical equipment industry has supported before," said Ben Boucher, a senior analyst at Wood Mackenzie. Some companies held back on expansions, fearing the bubble might burst, even while they reap the benefit of having products in high demand. Boucher said manufacturers already are going back to customers with year-old purchase orders to impose 20% price increases just to maintain delivery schedules.

Siemens is among the electrical gear companies that plan to expand. The German company announced this month it would invest more than $200 million in two new plants in Georgia and Texas to produce equipment for data centers and other industrial customers.

One way Siemens mitigates risk of the data center business slumping — leaving it with excess capacity — is signing multiyear agreements with customers, said Barry Powell, North American president of Siemens Electrical Products. "If the targets aren't met, there is a very large multi-million (dollar) penalty that helps us share the risk."

Even smaller companies feel the power of demand from data centers. Southeastern Hose — a family-run company in Bremen, Georgia, that traditionally made corrugated metal hoses for steel and petrochemical companies — saw demand from data-center projects explode in the past few years.

Trey Travis, the company's vice president of operations, said new demand helped triple the company's revenue in the past five years. Southeastern Hose added 60 workers and now employs 150 people.

"If this industry goes kaboom — if it's a bubble — there's always that fear that it'll domino the other way," Travis said. If that happens, he worries the company's longtime customers such as steel mills also could see a slowdown. "So, we try to manage it," he said. "We take care of the people who have been loyal to us for 60 years," along with the new business.