Data centers lead the US non-residential construction boom UBS names potential beneficiaries such as Caterpillar (CAT.US)

The Zhitong Finance App learned that according to UBS's analysis of Dodge Data & Analytics data, non-residential construction in the US continued to expand in August, and the sharp increase in data center projects helped offset the impact of weak infrastructure starts.

UBS analyst Steven Fisher and his team said in a September 22 report that the total number of non-residential construction starts in August increased 5.8% year-on-year, and increased 17.4% over the past three months. On a six-month basis, construction volume increased by 25.8%; the increase over the past 12 months was 22.1%.

Data centers are leading the construction boom

The overall data for August conceals the significant differentiation between construction and infrastructure construction. Construction starts increased by 31.8% year over year, with data center construction surging 248%. Manufacturing construction increased 33%, government buildings surged 201%, and hotel construction increased 55%.

Looking at a longer time span, the trend of data center expansion is even more significant. Construction volume in this category increased 262% in three months, 246% in six months, and 197% in the past 12 months.

For investors, these data further prove that spending related to artificial intelligence and cloud computing is becoming an increasingly important driver of construction activity in the US. UBS expects non-residential construction spending to accelerate again in the second half of 2026, driven by data centers, power projects, manufacturing, including semiconductors and pharmaceutical facilities, and infrastructure construction. Construction starts are an important leading indicator because projects can take years to complete, and current starts will translate into future spending on equipment, engineering, materials, and labor.

UBS currently predicts that nominal spending on non-residential construction in the US will grow 6.7% in 2027 after falling 0.9% in 2026. Previously, UBS had predicted 6% growth next year, and 3% this year.

Infrastructure hits speed bumps

Infrastructure construction has played a certain role in suppressing the prosperity of the construction industry. Infrastructure starts fell 21.5% year on year in August, compared to a 9.2% increase in July. Among them, the construction volume of streets and highways decreased by 27.6%, the number of bridges decreased by 38%, and the number of power plants and natural gas-related projects decreased by 19.3%. Dams, reservoirs, and river development projects were a notable exception, with increases of up to 69%.

Looking at the longer cycle, the momentum for infrastructure starts is much stronger. Infrastructure construction increased by 23.1% in the past six months and by 27.6% in the past 12 months. Electricity starts increased by 54% and 88%, respectively, during these two periods.

UBS said that recent infrastructure weakness may be related to the uncertainty brought about by the expiration of the Infrastructure Investment and Employment Act at the end of September and its extension until December. The bank indicated that the industry is likely to continue to be sluggish until the federal government's long-term funding prospects are more clear.

Traditional commercial buildings are weak

Not all construction markets are participating in this expansion. Warehouse starts fell 21.7% in August, and fell 17.7% over the past 12 months. Office building construction excluding data centers fell 15% in August, highlighting the degree of distortion caused by data center investment to the overall office building market.

UBS expects this category of spending to maintain negative growth until the end of 2026 due to high long-term interest rates and a slow recovery in commercial construction.

Which companies are expected to benefit?

The investment impact of this trend has affected a number of industrial and materials companies. According to UBS, the following companies have exposure to non-residential construction activity in the US: machinery companies include Caterpillar (CAT.US), Deere (DE.US), and Joint Leasing (URI.US); engineering and construction companies include Quanta Services (PWR.US), Jacob Engineering (J.US), FLR.US, and EMCOR (EME.US); steel and materials producers include Newco Steel (NUE.US), Steel Dynamics (STLD.US), Martin Marietta Materials (MLM.US), and Vulcan Materials (VMC.US).