S&P: High spending by Gulf telecom companies on digitalization and AI

S&P Global reported that the rapid advancement of artificial intelligence technologies is driving a new wave of investments in data centers across the Middle East, amid growing demand for digital infrastructure and governments’ efforts to enhance digital sovereignty and localize data.

In its report titled “Data Centers in the Middle East: How Are Telecom Companies Supporting AI Expansion?”, the agency noted that national AI strategies and regulatory requirements related to data, particularly in the UAE and Saudi Arabia, are accelerating the expansion of data centers and increasing demand for them.

In a detailed analysis of the region’s digital infrastructure landscape, the report highlighted that Kuwait currently has data center IT capacity and operational power of less than 500 megawatts.

This presence comes alongside massive expansions and strategic projects in neighboring markets.

S&P expects the UAE and Saudi Arabia to add between 2 and 3 gigawatts of IT capacity to the Middle East data center market by 2030, together accounting for more than 80% of the regional share.

Although these additions represent less than 2% of the total expected global increase in IT capacity from 2026 to 2030, approximately 70% of new global data center capacity is expected to come from the United States and Canada, according to data from 451 Research for the first quarter of 2026.

The report clarified that data localization requirements and government policies regulating cloud computing are key factors driving demand for local data centers in Gulf countries. Partnerships between major US or Chinese cloud computing companies and local partners are also gaining importance, particularly when local partners retain operational control over data centers, thereby supporting digital sovereignty objectives.

The report noted that the availability of energy and its relatively low cost are supportive factors for data center growth in the Gulf, as energy prices there are below global averages. According to 451 Research estimates, the average cost of building data centers from 2026 to 2030 is around $13 million per megawatt in Saudi Arabia and $11 million per megawatt in the UAE, compared to approximately $12 million in Europe and $13 million in North America.

Regarding the role of telecom companies, S&P expects them to play a significant part in developing the region’s digital infrastructure, leveraging their existing networks and capabilities in fiber optics and submarine cable connectivity, as well as contributing to providing data centers equipped to accommodate AI applications.

The agency forecasted an increase in capital expenditure intensity among Gulf telecom companies, as they continue investing in data centers, submarine cables, and adjacent digital sectors such as tower companies and fintech.

It estimated the average capital expenditure-to-sales ratio to be between 15% and 20% from 2026 to 2028, compared to approximately 10% to 15% from 2023 to 2025.

Nevertheless, S&P believes that credit-rated Gulf telecom companies are capable of absorbing these investment needs while maintaining relatively low debt levels. According to the agency’s base-case scenario, the average ratio of debt to EBITDA is expected to remain below 1.5 times in 2026 and 2027, with a slight increase compared to 2025 levels.

Regarding the transformation of business models, the report noted that telecom companies are gradually expanding their activities beyond traditional telecommunications services, given the limited growth prospects in their core services. It added that they are not necessarily aiming to own the largest share of new data centers, although their role in providing connectivity services and supporting infrastructure remains important.

Telecom-owned data centers account for 30% to 35% of total IT capacity in Middle Eastern data centers. However, the agency expects their share of new capacity additions to fall to less than 10% from 2026 to 2030, as a diverse range of investors, including private equity funds and sovereign wealth funds, enter the market.