Pentagon taps Carlyle, CyrusOne for $4B military AI data centers

The US Army selected Carlyle Group and CyrusOne to build two hyperscale AI data centers on military bases, each costing about $2 billion, in the Pentagon's first use of federal land to attract private capital for AI compute infrastructure.

"Fort Bliss will be the Pentagon's first-ever hyperscale data center," Army Secretary Dan Driscoll said.

Carlyle won development rights to 1,384 acres at Fort Bliss, Texas, while CyrusOne — jointly owned by KKR and Blackstone funds — secured 1,201 acres at Dugway Proving Ground, Utah. Developers finance, build, and operate the facilities under the Army's Enhanced Use Lease mechanism, which lets the military lease non-core land to private firms. Fort Bliss is expected to begin operations in fiscal 2027, with Dugway following in fiscal 2029.

The projects open a broader push to convert military bases into AI compute hubs. The Pentagon has requested $30 billion for hyperscale AI data centers, and the Department of Energy has identified up to 16 federal sites for potential development. Fort Bliss, the DoD's second-largest installation at 1.12 million acres, anchors a pipeline that could turn federal land into a major source of AI capacity.

More Bases Enter the Pipeline

The Army is evaluating data center development at Fort Hood in Texas and Fort Bragg in North Carolina. The Air Force has widened its search to include bases in Tennessee, California, New Jersey, Arizona, Georgia, and Alaska, plus a Space Force installation in Colorado. Fort Hood offers about 207 acres of developable land, roughly one-seventh the size of the Fort Bliss site.

Water and Power Constraints Loom

The buildout faces the same energy and water pressures hitting commercial data centers. Data Center Watch counts nearly $156 billion in US data center projects delayed or canceled because of local opposition. A Virginia state-funded study projects residential electricity bills could rise $14 to $37 a month by 2040.

Military sites add stricter requirements. The El Paso region around Fort Bliss carries an "extremely high" water risk rating, and the Army is pushing Carlyle to fund new wells for a local desalination facility to offset cooling demand. Projects must achieve net-zero water consumption and cannot rely on the local grid, forcing developers to build independent energy systems.

For investors, the model turns the Pentagon into a long-term AI infrastructure customer without adding to the federal balance sheet. Carlyle, KKR, and Blackstone gain a new asset class with 50-year lease economics, while publicly traded data center operators and construction firms stand to benefit from a pipeline of federal projects. The open question is whether energy and water constraints can be solved at scale before the next tranche of bases comes online.

This article is for informational purposes only and does not constitute investment advice.