Saudi Arabia's Neom Megacity Pivots to Data Center Hub Amid Major Downsizing
February 3, 2026
Saudi Arabia's ambitious $500 billion Neom megaproject is undergoing a fundamental strategic shift, with plans to significantly scale back its flagship 'The Line' city and reposition the development as a major hub for data centers and artificial intelligence infrastructure. This pivot underscores the Kingdom's aggressive push to diversify its economy under Vision 2030 and capitalize on the global AI boom, positioning itself as a competitive player in the digital infrastructure arena. According to reports from the Financial Times citing unnamed officials, the original vision for a 170-kilometer linear city designed to house up to nine million people is being dramatically downsized into a "far smaller" development. The change is attributed to severe cost overruns, construction delays, and economic pressures from falling oil prices. Instead, the focus will shift to supporting "industrial" applications, with a water-cooled data center hub planned for the northeastern coast. In a statement, Neom appeared to confirm the new direction, aligning it with national goals. "As Saudi Arabia works to establish itself as a global hub for data and AI," the entity said, "Neom is focused on attracting investors, partners and tenants in these fast-growing sectors." It highlighted the project's "natural advantages," including access to large amounts of renewable energy, land, and existing digital infrastructure. The strategic recalibration follows a period of intense scrutiny. A review was launched after cost projections for The Line reportedly ballooned to a staggering $8.8 trillion by 2080, leading to leadership changes. The repurposing builds upon existing data center initiatives within Neom, such as a February 2025 deal with DataVolt to develop an AI factory campus at the Oxagon industrial zone and a subsequent partnership with AI venture Humain. The move accelerates Saudi Arabia's rapidly expanding data center market. Guided by Vision 2030, the Kingdom's data center capacity is projected to grow by approximately 29 percent annually until 2030. Key projects are being spearheaded by the Hub for Manufacturing AI in Neom (Humain), which aims to deliver 6.6 gigawatts of capacity within a decade. This includes a planned 500-megawatt facility with Elon Musk's xAI and a 1-gigawatt collaboration with the Saudi Telecom Company. However, analysts point to significant challenges, primarily the extreme heat in the region. A report by Rest of World and Climate Central noted that nearly every planned data center in Saudi Arabia is in an area considered too hot for normal operations, necessitating heavy reliance on advanced water-based or dry cooling technologies to ensure viability amidst climate change.
Source: datacenterdynamics
