2025 Data Center Cooling Technology Outlook: Two-Phase Liquid Cooling, Hybrid Cooling, and Northern Site Selection Take Center Stage

Data centers could account for 44% of U.S. electricity load growth by 2028 and consume up to 9% of the nation's electricity supply by 2030, raising concerns about U.S. electricity availability and costs. According to the National Renewable Energy Laboratory, up to 40% of data center electricity use goes to cooling, making improved cooling efficiency a key strategy for reducing energy consumption. Cooling is also a critical part of data center design, affecting how facilities are developed, built, and retrofitted.

In the second half of 2024, several major announcements related to data center cooling systems were released. These systems protect high-performance processors and servers that support the advanced computing required for AI. In December, Microsoft and Schneider Electric each released efficient liquid cooling system designs to support increasingly powerful AI chips. Microsoft's water-based design operates in a closed loop, eliminating evaporative waste, while Schneider Electric's data center reference design uses a non-water refrigerant. Earlier in 2024, Vertiv and Compass Datacenters showcased their "first-of-its-kind" liquid-air hybrid system, expected to be deployed early this year.

Here are the trends and developments that data center cooling experts say will be on their radar in 2025 and beyond.

Two-phase liquid cooling will go mainstream

According to AFCOM's 2024 State of the Data Center Industry Report, most data center professionals are dissatisfied with current cooling solutions. 35% of respondents said they regularly make adjustments due to insufficient cooling capacity, and 20% said they are actively seeking new scalable systems.

Many data center cooling experts predict that developers and operators will increasingly turn to two-phase direct-to-chip cooling technology to improve cooling performance. These systems switch the working fluid (typically a non-water refrigerant) between liquid and vapor states, a process that "plays a critical role in heat removal," according to Accelsius, a designer of direct-to-chip liquid cooling systems.

Josh Claman, CEO of Accelsius, said in an interview that 2025 will be the "year of implementation" for two-phase systems, as data center professionals become more familiar with the technology. Claman said that more complex data centers with higher computing demands are more likely to seek two-phase cooling.

"There will hardly be any new data center that is fully air-cooled or fully liquid-cooled, because not all applications require high-intensity liquid cooling—think of rarely accessed archival data versus generative AI."

Sarah Renaud, Vice President of Consulting Services at ENCOR Advisors

Traditional air cooling reaches its physical limits at server rack densities of about 70 kilowatts, the benchmark for today's most advanced AI training facilities, said Sarah Renaud, vice president of consulting services at ENCOR Advisors, a commercial real estate firm serving data center clients. With higher rack densities in the future, "two-phase is the future," Renaud said. "It can handle higher power densities and heat fluxes, meaning it's better suited for AI workloads."

Hybrid cooling will expand, but supply chain risks loom

According to research by Chemours, Syska Hennessy Group, and cooling system designer LiquidStack in March 2024, two-phase immersion cooling offers data center operators a lower 10-year total cost of ownership than direct-to-chip or single-phase immersion cooling. But experts say its high upfront costs, the long operational life of traditional cooling systems, and the varied cooling needs within a single data center mean two-phase technology will coexist with other technologies for some time.

"There will hardly be any new data center that is fully air-cooled or fully liquid-cooled, because not all applications require high-intensity liquid cooling—think of rarely accessed archival data versus generative AI," Renaud said. "You can cool those (less demanding) racks more economically with air."

Microsoft's closed-loop water-based cooling system "seems to align with a gradual strategy," supporting its near-term needs while "allowing its infrastructure to easily transition to advanced cooling technologies, such as direct-to-chip two-phase cooling, when the time is right," said Nick Schweissguth, director of product and commercial enablement at LiquidStack.

"Ten years ago, you would try (when designing a data center) to provide more capacity than needed, then scale up gradually, but now you don't know what (power) density you need to build for."

Steven Carlini, Vice President of Innovation and Data Centers at Schneider Electric

But Schweissguth said data center operators' hybrid cooling plans could be complicated by supply chain issues, which could be exacerbated by anticipated tariffs from the Trump administration. He noted that direct-to-chip coolant distribution units (CDUs), which keep processors submerged in fluid, are particularly at risk.

As CDU demand surges in 2025, "companies vying for the direct-to-chip market will ultimately depend on their ability to mass-produce and build strong relationships with suppliers," Schweissguth said.

Building and system design will evolve for 24/7 operation

Steven Carlini, vice president of innovation and data centers at Schneider Electric, said operators' expectations for the most advanced AI data centers far exceed those for previous generations of facilities. Earlier facilities might have variable workloads averaging 30% or 40% of processing capacity, while AI facilities typically run at 100% capacity for weeks or months when training models, requiring more robust and redundant designs, Carlini said.

"This eliminates variability, but you have to make sure you design the cooling system to support that," he said. Carlini described a near future where higher rack power densities require heavier cooling infrastructure, adding physical demands to data center design. For example, a recent design his team worked on involved "huge" pipes, "large steel cages above superclusters," or two-story floor plans with the first floor flush with the concrete slab to bear the extra weight. "All that water has to go somewhere," he said.

'Slow but steady' retrofit activity

Accelsius's Claman said retrofitting operating data centers to accommodate more powerful processors is a huge technical and logistical challenge, leading some to believe new construction is easier. But he noted that new buildings are significantly more resource-intensive, complicating corporate sustainability goals. Existing data centers often have more robust power supplies. "That's why they're located where they are, and they're not easy to move," he said.

According to JLL's 2025 Global Data Center Outlook, most of the asset value of operating data centers lies in their power supply and infrastructure, such as electrical, plumbing, and other technical systems. Given the challenges of securing power for new developments, these assets are especially valuable. Therefore, retrofits transitioning existing data centers to liquid cooling will "become a viable solution and an opportunity to increase asset value," the JLL outlook said.

Meta is transitioning its existing data centers to liquid cooling "because they say 'we have to,'" and colocation giant Equinix said in December 2023 it would extend liquid cooling to its 100 data center facilities, Renaud noted. Claman predicted retrofits will proceed "slowly but steadily," with "more balanced discussions" around their benefits. Schneider Electric is also betting on this trend, recently partnering with Nvidia to release three retrofit reference designs for data center operators looking to boost performance without redesigning facilities from scratch.

Carlini said the rapid growth of computing power means that a data center at the forefront today can quickly fall behind, further complicating the daunting challenge of designing facilities with both air and liquid cooling infrastructure. "Ten years ago, you would try (when designing a data center) to provide more capacity than needed, then scale up gradually, but now you don't know what (power) density you need to build for," he said.

Northern climate facilities may gain an advantage

Carlini said that even in newer data centers, air provides 20% to 30% of the cooling load. This is prompting efficiency-focused developers to locate more facilities in the "attic"—the industry's informal term for cooler northern regions, Renaud and Claman said. "The market often talks about 'free cooling zones' in the northern U.S., Northern Europe, and Canada," Claman said.

In cooler weather, energy use for air-cooled systems can drop by up to 95%, Renaud said. "We're seeing a trend toward hybrid colocation strategies where data that doesn't need frequent access can be stored in more remote and colder locations," while high-access-frequency facilities remain in warmer, more established data center hubs like Northern Virginia, she said. Cold climate sites are also less likely to need water-intensive evaporative cooling systems, which are common in warm, dry climates and have raised concerns about data centers' environmental impact, Claman said. He predicted a shift toward closed-loop cooling systems that leverage seasonal free cooling. "There's a lot of scrutiny around draining aquifers to cool data centers," he said.