A data center is under construction in Loudoun County, Virginia on October 7, 2026. The region houses the world's largest concentration of data centers, making Virginia the nation's digital capital. (Photo by Olivier Douliery/Sipa via AP Images)There is a current shortage of AI data centers, but that shortage is temporary. More AI data centers will be built than will be needed to satisfy future AI compute demand. The industry is in the throes of a familiar bubble, where more investment flows into constructing facilities for a new technology than can be supported by customer demand. This has happened before with railroads and internet communications facilities and is happening again now with AI data centers.An oversupply is usually followed by a contraction — prices and supply collapse until an equilibrium is restored. But in this case the overexpansion of AI data centers is so large that the contraction is likely to have substantial macroeconomic consequences, a rapid decline in stock values and economic activity across the economy. This sequence of a recession following an overexpansion is also a familiar pattern established by the earlier overexpansion of railroads and internet facilities.Regulation can serve several purposes other than preventing the coming AI data center crash. Policymakers generally know how to protect electricity ratepayers from paying the costs of providing service to AI data centers and picking up the bill for stranded transmission and distribution…

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