The datacenter engineers have a problem, and it's not the kind you can patch with software. Somewhere inside the towering racks of Nvidia H100s and custom Google TPUs, a fundamental limit is asserting itself—not computational, but thermal. The chips are cooking. Liquid cooling helps, sure. But even the most sophisticated cold plates can only wick away heat so fast when the real choke point sits millimeters below, at the interface between silicon and metal.
So naturally, a handful of startups and legacy materials suppliers are now pitching diamond. Not as a luxury good, but as infrastructure.
Yes, that diamond—the crystalline form of carbon that typically adorns engagement rings. Turns out it conducts heat roughly five times better than copper, the metal that's been doing thermal duty since the dawn of electronics. At somewhere between 2,200 and 2,400 watts per meter-kelvin, diamond's thermal conductivity makes copper's ~400 W/m·K look quaint. The physics has been understood for decades. What's changed is the confluence of spiraling datacenter energy bills, manufacturing advances in chemical vapor deposition (CVD), and the uncomfortable reality that AI accelerators are generating heat densities no conventional cooling system was designed to handle.
Among the companies betting on this shift is Kara Labs, a Y Combinator alum from what the accelerator called its Summer 2026 cohort. According to founder Arjun Lakhanpal, Kara is reportedly the first diamond-focused startup in YC's portfolio. With a team that hovers somewhere south of ten people, Kara is engineering single-crystal diamond wafers for thermal management, power electronics, and quantum applications. In other words, making diamond behave like a commodity substrate rather than a specialty material.
The ambition is notable. Whether it's realistic depends on questions the industry hasn't fully answered: cost, scalability, and whether hyperscalers will pay a premium for cooler silicon when they're already hemorrhaging cash on GPUs and power contracts.
A Market in Structural Shift
Datacenter cooling is undergoing something close to a revolution, though you wouldn't know it from walking past the rows of humming CRAC units in most facilities. Direct-to-chip liquid cooling—systems that route refrigerant or water loops directly onto processor packages—has gone from niche to necessity. MarketsandMarkets pegged the market at $3.33 billion as of 2026, projecting it will hit $17.31 billion by 2032, a compound annual growth rate of 26.5 percent—figures that align with other industry estimates, including Grand View Research's 2024 baseline of $1.9 billion. That's not hype. That's infrastructure spending catching up to physics.
The International Energy Agency reported in mid-2026 that datacenter electricity consumption surged through 2025 and is on track to double by around 2030. AI workloads, specifically, are expected to triple their power draw in that same window. Gartner estimated datacenter electricity growth at 26 percent for 2026 alone, with AI-optimized servers accounting for roughly 31 percent of the load.
Yet even as operators install liquid cooling and experiment with immersion tanks—dunking entire servers in dielectric fluid—the core problem persists. Heat has to travel from the transistor junction through layers of thermal interface materials, package lids, and cold plates before it reaches a coolant loop. Each interface adds resistance, like bottlenecks on a highway. That's where diamond evangelists see an opening.
A handful of established players have been quietly producing CVD diamond heat spreaders for years: Element Six, a De Beers subsidiary; Coherent Corp., the publicly traded materials giant; and Diamond Foundry, which has pivoted from lab-grown gemstones to industrial substrates. The market for CVD diamond in thermal management applications stood at roughly $707 million in 2026, according to 360iResearch, and is forecast to reach $1.56 billion by 2032—a 14 percent annual clip. Within that broader market, heat spreaders specifically were valued at $231 million in 2026 and are projected to grow to $485 million by 2032 at a 13 percent CAGR, per Research and Markets.
Those are real numbers, but they're still small compared to the broader semiconductor supply chain. The question is whether diamond remains a boutique solution for RF amplifiers and laser diodes, or whether it breaks into the AI hardware stack at scale.
Why Now?
Three things are converging.
First: chip power densities are outrunning cooling infrastructure. Modern GPU chiplets, especially those paired with high-bandwidth memory stacks, generate localized hotspots that overwhelm traditional metal spreaders. SK hynix announced in May 2026 an integrated HBM solution that embeds cooling elements inside the memory package itself, claiming a 30 percent drop in thermal resistance. That's a signal. The industry is moving toward "at-source" thermal management, trying to kill heat before it spreads. Diamond, with its extreme conductivity, fits that paradigm almost too neatly.
Researchers at MIT demonstrated in June 2026 a 4-watt heterogeneous power amplifier embedding gallium nitride transistors in an ultrathin single-crystal diamond interposer, claiming speed and efficiency gains for next-gen wireless. A separate study published around the same time showed that integrating a diamond heat spreader into a 2.5D chiplet interposer cut temperatures by more than 20 degrees Celsius in test vehicles. Not every lab result translates to production, but the proof points are accumulating.
Second: sustainability pressure is real, and it's not going away. The Bank of America Institute noted mid-2026 that "cooling sits at the center of AI's water challenge," linking water-use effectiveness to grid mix and cooling strategy. Diamond Foundry, in an April 2026 whitepaper, claimed its bondable single-crystal substrates enable "100× better cooling with 55× less water" by facilitating phase-change cooling at near-atmospheric pressure. That's a vendor claim, not peer-reviewed science, but the underlying logic holds. Better heat spreading at the chip level could make dry or adiabatic cooling viable even for the densest AI racks, eliminating the water consumption that's become a political flashpoint in places like Arizona and Northern Virginia.
The Uptime Institute observed around the same period that dry cooling systems can now rival evaporative setups on power usage effectiveness in many climates, with near-zero water draw. If diamond substrates help push that envelope, the business case strengthens.
Third: geopolitics. Spain formalized a €752 million public investment in Diamond Foundry's expansion in Extremadura in June 2026, a clear signal that European governments view diamond substrate capacity as strategic. Meanwhile, the U.S. Bureau of Industry and Security added diamond and gallium oxide to export controls back in August 2022 as emerging semiconductor materials—a rule that remains in force. Diamond wafers, in other words, are no longer just a materials curiosity. They're infrastructure with national security implications.
The Incumbents and the Insurgents
Element Six has been here longer than anyone. The company, spun out of De Beers' industrial diamond division, demonstrated back in 2014—in collaboration with Raytheon—that GaN-on-diamond wafers delivered a threefold improvement in power density versus GaN-on-silicon carbide for RF devices. In January 2025, Element Six launched a copper-diamond composite explicitly targeted at AI/HPC and GaN RF applications, positioning the material for GPU lids, chiplet packages, and co-packaged optics. The pitch: diamond eliminates heat-flux bottlenecks that metal composites can't touch.
Coherent Corp., the publicly traded materials supplier, announced in June 2025 a diamond-loaded silicon carbide ceramic composite with isotropic thermal conductivity exceeding 800 W/m·K—roughly double copper's performance. The company markets polycrystalline CVD diamond wafers up to 145 millimeters in diameter and frames the composite as an energy-saving play, citing industry estimates that cooling accounts for up to half of datacenter energy consumption. Applied Diamond, a smaller outfit, offers custom heat spreaders with thermal conductivity ranging from 800 to 2,000 W/m·K, grown in-house via microwave plasma CVD and laser-cut to spec.
Then there's Akash Systems, which has focused on GaN-on-diamond power amplifiers for space and radar. In July 2026, the Journal of Electromagnetic Dominance reported that Akash's GaN-on-diamond materials were operating in low Earth orbit, proving thermal robustness in vacuum and radiation—environments that make a datacenter look like a spa. The company's "Diamond Cooling" branding emphasizes system-level benefits: higher power output, longer component life. Arguments that resonate beyond satellite communications into terrestrial infrastructure.
Kara Labs is the new entrant, and the one with perhaps the most to prove. The startup's website outlines a product menu spanning research-grade single-crystal wafers, delta-doped engineered layers, thin-film membranes, and custom microfabrication services. Founders Arjun Lakhanpal, Anuveer Chadha, and Aarin Jhaveri frame diamond as the answer to what they call the "heat wall"—the point where chip performance stalls not because of transistor speed, but because the silicon is too hot to run faster. Recent LinkedIn posts from the team emphasize diamond's ~5× thermal advantage over copper as a potential unlock for the next wave of AI hardware.
It's early. Kara is a small team. But the YC pedigree and the timing suggest the founders see an opening while larger incumbents focus on incremental product iterations rather than ground-up substrate engineering.
The Hard Questions
Getting from lab to fab is never a straight line, and diamond is no exception. A 2026 review in Diamond & Related Materials noted that while CVD diamond can hit 1,500 to 2,200 W/m·K thermal conductivity, challenges around cost, wafer warpage, and crack yield remain. Thermal boundary resistance at interfaces—particularly in GaN-on-diamond devices—continues to limit real-world performance, though studies in 2025 and 2026 have shown incremental gains using aluminum nitride interlayers and advanced bonding techniques. Wafer size is another constraint. Single-crystal diamond wafers remain smaller than the 300-millimeter silicon standard, though vendors are scaling up polycrystalline plates and bondable single-crystal assemblies.
Cost, though. That's the elephant.
Industry pricing for diamond heat spreaders is mostly undisclosed, but market research indicates a significant premium over metal or ceramic alternatives. Whether that premium pencils out depends on total system economics: energy savings, reduced cooling infrastructure, the potential to run chips at higher clock speeds or pack them more densely. As liquid cooling penetrates deeper into the datacenter stack—Mordor Intelligence estimated direct-to-chip systems captured 42.85 percent of the datacenter liquid cooling market in 2025—operators will increasingly evaluate materials not in isolation but as part of an integrated thermal budget.
If a diamond insert in a GPU lid cuts junction temperature by 10 to 20 degrees Celsius, maybe it enables smaller chillers, less water consumption, tighter rack spacing. Real returns. The kind that could justify upfront material costs, assuming the supply chain can deliver at scale.
Regulatory dynamics will matter, too. BIS controls on diamond substrates may complicate cross-border collaboration, especially as China ramps its own CVD diamond research. Conversely, public investments like Spain's Diamond Foundry package signal that Western governments view advanced materials as a lever for semiconductor sovereignty—a way to reduce dependence on Asian supply chains.
For founders building AI chips or datacenter hardware, diamond is no longer speculative. It's a design option with measurable thermal performance, a growing supplier base, and tailwinds from energy costs and sustainability mandates. Whether it becomes a default or remains a high-end specialty will depend less on the material's intrinsic properties—those are well established—and more on manufacturing scale, integration know-how, and the willingness of hyperscalers to pay extra for cooler silicon.
Which is to say: the usual factors that determine whether a promising material becomes infrastructure, or just stays promising.
