Is Israel’s data center boom a growth engine or the next market bubble?
A wave of new entrants raises questions about electricity limits, financing risks and long-term winners.
Growth engine or emerging bubble: In the past two years, no fewer than 12 public companies have announced their entry into the data center sector, making it one of the hottest themes on the Tel Aviv Stock Exchange. Data centers, the critical infrastructure underpinning the artificial intelligence (AI) revolution, are attracting a growing wave of companies searching for their next growth engine. Relatively low electricity prices in Israel compared with Europe, combined with rising global demand for computing power, are encouraging new players to establish large-scale server farms. However, as the sector gains popularity, more voices in the capital market are beginning to ask whether there is room for so many players, and whether, similar to previous investment cycles, some of those rushing in will eventually fall away.
The latest entrant to the trend is Kardan Israel, which operates in income-generating real estate and is controlled by Avner Schnur (35.2%), Gil Deutsch, and Roni Biram (25%). Earlier this week, the company announced that it is consolidating its data center activities under a dedicated subsidiary and has appointed Benny Malka, Chief Technology Officer at Dell Technologies, as its CEO. Capital market estimates suggest this is an early step toward a potential IPO of the subsidiary, subject to the pace of growth and continued industry momentum. A day earlier, Stark Power, founded by former Nofar Energy CEOs Nadav Tena and Shahar Gershon, together with Zafrir Yoeli, one of the founders of Enlight, announced the acquisition of US-based Sage for $50 million. The acquired company develops server farm projects in the United States.
Former Nofar Energy CEO and controlling shareholder Ofer Yannay also entered the field this week, when Nofar signed a deal to purchase land in Shoham for NIS 361 million to build a data center, and it was revealed in Calcalist that it is also in talks to acquire a European data center company for hundreds of millions of euros.
“The excitement surrounding the data center sector stems primarily from surging demand for computing infrastructure for artificial intelligence,” an institutional investment manager told Calcalist. “While in the past demand for server farms was driven mainly by cloud migration, today the AI race is creating massive demand for new data centers, both for training models and running them. The world’s largest technology companies are investing huge sums in computing infrastructure, and this is reflected in unprecedented demand for Nvidia chips and global data center capacity.”
He added that for major cloud companies, geographic location is relatively secondary. “For companies like Google, Amazon, and Meta, it doesn’t really matter where the farm is located. It can be almost anywhere, as long as it meets operational and energy requirements.” In his view, this suggests that most players will find a place in the market.
Another investment manager points to the main barrier to entry. “The main moat in this sector is the initial investment. You build your first facility speculatively, before you even have a customer. This can reach $240 million per site. Even large income-generating real estate companies that are seeing some erosion in profitability, such as Amot and others, are likely to announce entry into the sector at some point. The reason is simple: they have strong access to financing.”
He added that in addition to cheap electricity, Israeli companies currently benefit from a financing advantage. “The gap in financing costs compared with overseas competitors can reach about 2%. So not only electricity, but also financing is becoming a major catalyst for entry.” According to him, “If you prove yourself in the first two years, the big players arrive, Amazon, Google, Nvidia, and also new cloud players such as Nebius and Crusoe.”
The Big Challenge: Electricity
Despite the optimism, almost all market participants agree that the industry’s biggest challenge in the coming years is not financing, land, or construction, but electricity.
Server farms are electricity-intensive on a scale rarely seen before. In 2025, data centers in the US alone consumed 224 terawatt hours. By comparison, Israel’s total electricity consumption that year was 75 terawatt hours, and demand is expected to grow exponentially.
“I don’t have a good answer to where all this electricity will come from, and it is certainly worrying,” says an investment manager at a large institutional body. “Building data centers is not the main challenge. The real bottleneck is electricity supply. A 100-megawatt data center requires 130 to 150 megawatts of power, because cooling systems consume enormous energy. That is roughly the electricity consumption of a medium-sized Israeli city.”
He added that with Israel’s electricity demand breaking records almost every summer, the key question for developers is not where to build, but how to secure fast access to power and transmission infrastructure.
As of today, data centers with an estimated combined capacity of about 250 megawatts are connected to the grid. The national system operator Noga is identifying zones for additional facilities, increasingly focusing on peripheral regions. Regulators currently do not see an immediate threat to grid stability, even though electricity demand growth is outpacing the construction of new power plants.
“The current wave in data centers reminds me of the solar boom a decade ago,” said one institutional investor. “Back then, projects were built quickly, but grid connection took far longer than expected.”
Another investor noted a growing global trend: “In recent years, campaigns under the slogan ‘Bring Your Own Power’ have emerged in the US and Europe. In some states, electricity prices have risen due to data center demand, so developers are increasingly expected to bring their own energy solutions.”
The Symbol of the Trend: Mega Or
If there is a company that has become a symbol of the trend, it is Mega Or, controlled by Tzachi Nachmias. Mega Or established its subsidiary Mega DC and entered the sector at the end of 2024, with its first facility becoming operational in September 2025. Since then, its stock has risen eightfold over two years, reaching a valuation of NIS 26.5 billion, and it joined the Tel Aviv-35 index last month.
Although its data center operations remain relatively small, generating NIS 12 million in revenue and NIS 9 million in NOI in the first quarter, investors are pricing in significant future growth.
Mega DC has seven projects under construction with a weighted capacity of 313 megawatts, plus additional land for five more projects totaling at least 280 megawatts. The company estimates that operating projects will generate over NIS 1 billion in annual NOI, with signed contracts already supporting NIS 460 million. For comparison, Mega Or’s total NOI in Q1 2026 implies an annualized rate of NIS 445 million.
The company forecasts that by the end of 2028, annual NOI will reach NIS 1.6 billion, with Mega DC contributing NIS 1.05 billion, about 65% of the total.
The question now is whether other companies can replicate Mega Or’s trajectory, or whether the current wave of enthusiasm will ultimately follow previous market cycles, producing far fewer winners than the current momentum suggests.
