Cloud Computing Adoption Fuels Huge Data Center Capex Projections – Channel Futures

Dell’Oro Group expects spending to hit $377 billion by 2026. That’s important for the channel to know.

Global data center capex will top $377 billion within three years, mostly thanks to the hyperscale cloud providers.

That’s according to new findings from Dell’Oro Group. The research firm recently published “Data Center IT Capex 5-Year Forecast Report.”

Companies including Amazon Web Services, Microsoft Azure and Google Cloud will account for more than half of that $377 billion. All in all, that amount of data center capex spending by 2026 represents 13% growth, according to analysts.

Dell’Oro Group’s data center capex prediction bodes well for companies that sell servers, racks, cabling and security equipment. The forecast also looks good for other entities: corporations that lease real estate (especially as organizations worldwide continue to offload physical offices in support of remote work); vendors that provide heating and cooling; and businesses that deliver third-party maintenance and support.

There will be opportunities for other, less-traditional data center suppliers, too. Dell’Oro Group says primary data center capex drivers will come in the form of new server CPU platforms and accelerated computing. The latter relies on special processors that speed up work on intensive applications such as artificial intelligence and data analytics. Baron Fung, research director at Dell’Oro Group, said these new shifts are important to note.

Dell'Oro Group's Baron Fung

Dell’Oro Group’s Baron Fung

“The data center of the future will continue to evolve, with new accelerated computing architectures on the horizon enabling AI applications that are more automated, intelligent and immersive for end users,” Fung said.

Again, AWS, Azure, Google and their global competitors will stand out as the biggest consumers of these capabilities.

“The hyperscale service providers will lead the market in investing in new accelerated computing technologies, with an emphasis on the cutting-edge server and network architectures, as well as enhanced thermal management solutions,” Fung said.

In Short Term, ’Uncertainty’ for Data Center Capex

But these expectations will not come to fruition easily. The hyperscalers and their data center partners face the same challenges as all other businesses. That’s due to the protracted effects of the COVID-19 shutdowns and ongoing political conflicts including Russia’s war in Ukraine.

“[T]here is much uncertainty in the near term for the overall market,” Fung said. “Lingering supply chain challenges, persistent inflationary pressures and declining economic growth could weigh down on enterprise data center spending in the near term.”

Dell’Oro Group’s long-term outlook, however, remains “optimistic,” Fung said. He attributed that projection to several factors. The first? Enterprises undergoing digital transformation. Indeed, most research firms agree that digital transformation will continue to serve as a key contributor to cloud computing adoption. More organizations are investing in technology to update their legacy applications, networks and employee-facing tools. As they do so, they will shift many of their computing needs from on-premises data centers to providers such as Digital Realty and CoreSite.

The second reason for higher data center capex will stem from hybrid cloud workloads. To be sure, this ties in with digital transformation. More IT leaders are understanding that a pure public cloud play may not best serve their organizations. As such, they are becoming more strategic about which programs and data stay within their walls, and which reside in external data centers.

Finally, data centers will benefit as cloud providers and telecom operators extend their infrastructure to the network edge. To that point, Dell’Oro Group says edge computing – another facet of digital transformation – will comprise 8% of all data center capex by 2026. Edge computing, of course, reduces latency and processing time, and keeps information close to the organization.

Interest in Data Centers Is Hot

As cloud computing continues its meteoric rise, interest in data centers will only increase. Take, for instance, private equity enthusiasm for the market. In just the first half of 2022, investors poured $24 billion into data center mergers and acquisitions, according to recent numbers from Synergy Research. Another $18 billion worth of deals should close by year’s end. Similar to Dell’Oro Group’s observations, Synergy’s John Dinsdale said data centers are seeing “ever-increasing demand” fueled by cloud computing and digital transformation.

“The trouble is that building and operating large fleets of data centers is highly capital intensive,” Dinsdale said in late June. “Even the biggest data center operators have had to seek external funding to allow them to meet growth targets while protecting their balance sheets. As the level of resulting M&A activity has shot through the roof, virtually all of the incremental investment has come from private equity.”

This UrIoTNews article is syndicated fromGoogle News

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