Report Highlights

Web-Scale IT in the U.S.: Market Overview

The U.S. web-scale IT market, covering servers, storage, networking, and cooling systems deployed by hyperscale operators, was valued at USD 68.4 billion in 2024. Private capital has driven the build-out: Amazon Web Services, Microsoft, Google, and Meta have funded most capacity from balance sheets rather than federal grants. Government has acted as regulator and tax authority rather than direct investor, and that distinction defines how policy reaches the market.

Policy has shaped the current form through three channels: export controls on advanced accelerators administered by the Bureau of Industry and Security, state sales tax exemptions for data center equipment enacted in Virginia, and federal cloud authorisation under FedRAMP. Federal demand flows through General Services Administration contract vehicles, but commercial hyperscale spending remains the dominant source of orders. Northern Virginia's Loudoun County now anchors the largest concentration of capacity.

Policy-Driven Growth in the U.S. Web-Scale IT Market

Executive Order 14028, Improving the Nation's Cybersecurity, issued in May 2021, and OMB Memorandum M-22-09 require federal agencies to adopt zero trust architecture, with core requirements due by the end of fiscal 2024. Segmenting networks into microperimeters multiplies east-west switching, firewall, and identity infrastructure per workload. Agencies must also buy only FedRAMP-authorised cloud services, so each authorised region becomes a dedicated build with isolated server and storage pools.

Virginia's sales and use tax exemption for data center equipment, codified in Virginia Code section 58.1-609.3, lowers the capital cost of servers, cooling units, and power infrastructure. The Joint Legislative Audit and Review Commission estimated foregone state revenue of roughly USD 928 million in fiscal 2024, a figure that approximates the hardware spending the exemption supports. Separately, the CHIPS and Science Act of 2022 directs USD 39 billion in manufacturing incentives through the Commerce Department's CHIPS Program Office, shortening supply chains for server processors.

Regulatory Barriers and Compliance Costs

Export controls under the Export Administration Regulations, specifically Export Control Classification Number 3A090, require Bureau of Industry and Security licences before advanced computing chips reach China and other restricted destinations. Licence applications and end-use certifications typically add several months to multinational deployments, and non-compliance triggers civil penalties under the Export Control Reform Act of 2018. BIS rescinded the AI Diffusion Rule in May 2025, but the 3A090 controls remain fully in force.

Grid interconnection is now the most binding approval gate. The Federal Energy Regulatory Commission governs transmission access, while state commissions set retail large-load tariffs, and Dominion Energy's Virginia service territory requires multi-year transmission upgrade studies. Texas Senate Bill 6, enacted in 2025, requires loads of 75 megawatts or more to disclose backup generation and accept emergency curtailment. Developers face study deposits, collateral requirements, and delays measured in years.

Policy-Created Opportunities in the U.S.

The advanced manufacturing investment tax credit under Section 48D of the Internal Revenue Code, raised to 35 percent for qualifying projects by the 2025 budget reconciliation law, creates opportunities for domestic semiconductor partnerships. Server makers are responding: Foxconn announced a Houston facility in 2025 to assemble NVIDIA AI servers, creating local demand for rack integration, power distribution, and liquid cooling suppliers. Investors should prioritise Texas and Arizona sites where state incentives and fabrication proximity coincide.

Federal security certification is creating paid demand for compliant infrastructure. FedRAMP 20x, launched by the General Services Administration's FedRAMP Program Management Office in 2025, automates authorisation evidence for cloud-native software vendors. The DoD Cybersecurity Maturity Model Certification program, codified at 32 CFR Part 170, phases in contract requirements from November 2025, forcing defence contractors to buy hosting from C3PAO-assessed providers.

Market at a Glance

Leading Market Participants

• Amazon Web Services
• Microsoft
• Google
• Meta Platforms
• Oracle
• Dell Technologies
• Hewlett Packard Enterprise
• Super Micro Computer
• NVIDIA
• Equinix

Regulatory and Policy Environment

The primary statute is the FedRAMP Authorization Act, enacted within the National Defense Authorization Act for Fiscal Year 2023 (Public Law 117-263). It places authorisation under the General Services Administration, with the Office of Management and Budget setting governmentwide policy and the Cybersecurity and Infrastructure Security Agency issuing federal baseline directives. Providers must meet NIST Special Publication 800-53 Revision 5 controls at the applicable FedRAMP impact level, while CMMC requires Level 2 third-party assessment for defence contracts.

Upcoming changes include CMMC Phase 2 in November 2026, which requires Level 2 certification assessments for applicable defence contracts, and FedRAMP 20x transition milestones through 2026. At state level, the California Consumer Privacy Act, as amended by the California Privacy Rights Act, imposes obligations on processors handling personal data. Compared with the European Union, whose Data Act applied from 12 September 2025 with mandatory cloud switching obligations, the U.S. framework is fragmented but imposes no national data localisation requirement.

Long-Term Policy Outlook for Web-Scale IT in the U.S.

By 2032 the dominant policy variable will be power. The Department of Energy's October 2025 directive asked the Federal Energy Regulatory Commission to finalise large-load interconnection rules, with a requested action date of April 30, 2026, which will standardise queue treatment across regions. The July 2025 executive order on accelerating federal permitting of data center infrastructure will steer siting toward federal land and expedited environmental review under NEPA.

FedRAMP 20x will shorten authorisation cycles, shifting federal workloads toward smaller cloud providers and rewarding software-native security vendors. CMMC enforcement will expand the certified hosting market for defence suppliers from 2026 onward. Legislative audits of tax exemptions, following Virginia's 2024 JLARC review, will narrow incentives and push new capacity toward Texas, Ohio, and Pennsylvania.