AI Data Center Investing Glossary

Forty terms you need to read a data center offering circular or a REIT results release, defined in plain English, with the investment implication of each rather than just the definition.

Definitions written for someone reading an offering document, not for someone designing a building. Where a term has an investment consequence, it is stated.

Power and capacity

Kilowatt (kW) / Megawatt (MW) — units of power. 1 MW = 1,000 kW. Data center capacity and rent are both quoted in these. Implication: MW is the unit of value; square footage is close to irrelevant.

Critical load — the power actually available to the tenant's computers, after the facility's own overheads. A "10 MW facility" may mean 10 MW of utility service or 10 MW of critical load. Implication: ask which. The difference can be 20–30% of revenue.

Commissioned / energised capacity — power physically delivered and tested at the property. The only version of "we have 10 MW" that is a fact about the present.

Interconnection — the process of connecting a large load to the utility grid: application, studies, network upgrades, agreement, construction. Implication: the main source of schedule risk. See why power is the constraint.

Interconnection queue — the ordered list of requests a utility or system operator studies. Being in it is not an allocation.

Electric service agreement (ESA) — the signed contract to deliver power. Implication: the dividing line between contracted power and hoped-for power.

Non-binding supply proposal — a utility's written description of terms on which it could serve a load. Can be withdrawn, repriced or re-timed. Not an ESA.

Substation — the equipment that steps transmission voltage down for local distribution. A new one is a multi-million-dollar, multi-year item.

PUE (Power Usage Effectiveness) — total facility power ÷ power delivered to computing equipment. 1.0 is perfect; 1.2 is good. Implication: a lower PUE means less power wasted on cooling, which matters to whoever pays the bill.

Behind-the-meter — generation on the customer's side of the utility meter. Faster than a grid upgrade; brings fuel, permitting and regulatory questions.

Bridge power — temporary on-site generation until utility power arrives. Expensive per MWh and frequently absent from the model.

Curtailment / demand flexibility — agreeing to reduce draw during system peaks in exchange for faster or cheaper connection.

UPS (Uninterruptible Power Supply) — batteries or flywheels covering the seconds between a grid failure and generators starting.

N+1, 2N — redundancy levels. N+1 means one spare unit of a component; 2N means a fully duplicated system. Implication: higher redundancy costs more to build and commands higher rent.

Cooling and density

Rack density — power drawn per rack, in kW. Conventional racks run around 5–10 kW; AI training racks run far higher. Implication: the single number that determines whether a building needs liquid cooling.

Liquid cooling — removing heat with liquid rather than air; either direct-to-chip cold plates or immersion. Required above the point where air stops coping. Implication: a plumbing system inside a building type designed for fans, with real retrofit cost.

Direct-to-chip — cold plates mounted on the processors, fed by a liquid loop.

Immersion cooling — submerging hardware in a dielectric fluid.

CDU (Coolant Distribution Unit) — the equipment managing the liquid loop between the facility and the racks.

Free cooling — using outside air or water instead of mechanical refrigeration when the climate allows. Lowers operating cost and makes siting a financial decision as well as a technical one.

Leasing

Colocation — renting space, power and cooling in someone else's building for your own hardware.

Retail colocation — small increments, racks up to a few hundred kW, many tenants. Highest rate per kW; most operator effort; diversified revenue.

Wholesale colocation — whole halls or buildings, 1 MW and up, one or few tenants. Lower rate per kW, longer terms, concentrated revenue.

Build-to-suit — built for a named tenant against a signed pre-lease. Implication: only meaningful if the lease is signed before the money is spent.

Hyperscaler — the very large cloud and AI operators who take the biggest leases. Excellent credit; considerable negotiating power.

Pre-lease — a binding lease signed before completion, commencing on delivery. The real thing.

Letter of intent (LOI) / term sheet — a statement of what parties might agree. Normally non-binding. Implication: not revenue.

Triple net (NNN) — a lease making the tenant responsible for taxes, insurance and maintenance. In data centers the allocation varies; read the clauses rather than the label.

Escalator — the annual rent increase, usually a fixed percentage. Implication: an escalator below cost inflation is a real decline in income.

Rent per kW per month — the standard pricing unit. CBRE put the global weighted average asking rate at $217.30 in Q1 2025 (CBRE).

Backlog (signed not commenced) — leases signed whose rent has not started, usually because the building is unfinished. Implication: contracted future revenue, and the best forward indicator in a REIT's results.

Net absorption — capacity newly occupied in a period, net of vacated. CBRE recorded 538.6 MW of net absorption in Northern Virginia in H1 2025 (CBRE).

Preleasing rate — the share of under-construction capacity already leased; 74.3% in North American primary markets in H1 2025 (same source).

Money and structure

NOI (Net Operating Income) — rental income less operating expenses, before debt service, tax, depreciation and usually before sponsor fees. Implication: the top of the waterfall, not your return.

Cash yield / cash-on-cash — annual cash distributions ÷ cash invested. Implication: ask whether it is before or after management fees and promote.

Cap rate — NOI ÷ asset value. Used to value income-producing property; a lower cap rate means a higher price for the same income.

Stabilised — the state in which a property is fully leased and operating normally. A "stabilised yield" is a projection about a future state.

REIT — a company owning income property that distributes most of its taxable income rather than paying corporate tax on it; the dividends-paid deduction must equal or exceed 90% of taxable income excluding that deduction and net capital gain (IRS).

Regulation A — an exemption allowing public offerings without full registration: Tier 1 up to $20 million and Tier 2 up to $75 million in a 12-month period, with Tier 2 limiting a non-accredited natural person to the greater of 10% of annual income or net worth (SEC; SEC).

Offering circular (Form 1-A Part II) — the primary disclosure document in a Reg A offering. Implication: read it, especially the risk factors and the use of proceeds.

Qualification — the SEC's clearance of a Reg A offering statement, required before sales. Implication: it is not approval of the investment or of the projections.

Form 1-K / 1-SA / 1-U — Reg A ongoing reports: annual within 120 calendar days of year end, semiannual within 90 calendar days after the half year, and current within four business days of certain events (SEC). Implication: the only independent window into a private deal's progress.

Regulation D / Rule 506(b) — the private placement exemption: unlimited accredited investors, no more than 35 non-accredited in any 90-day period (SEC).

Accredited investor — among other routes, net worth over $1 million excluding the primary residence, or income over $200,000 individually or $300,000 jointly in each of the two most recent years (SEC; SEC).

Sponsor — the party organising, financing and managing the project. Implication: in a private deal, your outcome depends on them more than on anything else.

Promote / carried interest — the sponsor's share of profit above a threshold. Aligns interests, because it only pays if you do well.

Acquisition or sourcing fee — a percentage of project cost, usually paid at closing. Implication: earned whether or not the project succeeds.

Sponsor units — units held by the sponsor that share in distributions. Implication: dilutes your per-unit economics; check how many.

Preferred return — a return paid to investors before the sponsor's promote. Check whether it is cumulative, and whether it compounds.

Waterfall — the agreed order in which cash is distributed. Implication: read it; it is where the yield you were shown becomes the yield you receive.