Local data centers are shrinking rapidly
Synergy Research Group emphasizes that while the share of colocation in the total global data center capacity may continue to decline slowly, colocation capacity itself will continue to increase steadily.
Although the actual capacity of on-premises data centers remains relatively stable, the on-premises share of total global capacity is expected to decline by almost three percentage points annually.
Synergy estimates that non-hyperscale colocation data centers account for 22% of global capacity, while local data centers account for 37% of total capacity.
This is in stark contrast to the situation six years ago, when, according to the analyst’s calculations, almost 60% of data center capacity was housed in local facilities.
Synergy’s Dinsdale noted, “Companies are also choosing to house an increasing proportion of their data center equipment in colocation facilities, further reducing the need for on-site data center capacity.”
Dinsdale concluded: “The rise of generative AI technology and services will only exacerbate these trends over the next few years, as hyperscale operators are better positioned to run AI operations than most enterprises.”
Synergy says its data is based on a combination of several detailed quarterly tracking research services, allowing the company to produce a comprehensive analysis of data center capacity with breakdowns by region, country and metropolitan market.
The company says its hyperscale research is based on an analysis of the data center space and operations of the world’s largest cloud and internet services companies, including the largest operators in SaaS, IaaS, PaaS, search, social networking, e-commerce and gaming.
The colocation research is based on Synergy’s in-depth observation of the colocation market, including quarterly data on over 290 individual companies. The enterprise on-premise analysis is based on Synergy’s observation of the data center hardware market.
Forecast for spending on AI infrastructure in the trillions
A recent report from Dell’Oro Group predicts that AI infrastructure spending will exceed $1 trillion over the next five years, with global data center capital expenditure expected to grow at a compound annual growth rate (CAGR) of 24% through 2028.
“Due to increasing demand for AI-related data center infrastructure, we have revised our forecast for data center capital expenditure upward to a compound annual growth rate of 24% through 2028,” said Baron Fung, senior research director at Dell’Oro Group.
Fung added: “AI has the potential to generate more than $1 trillion in AI-related infrastructure spending in cloud and enterprise data centers over the next five years,” said Baron Fung, senior research director at Dell’Oro Group.
Dell’Oro’s research is based on the fact that AI infrastructure – which includes servers with GPU or custom accelerators, as well as dedicated networking, storage and facilities – is extremely capital intensive.
According to Dell’Oro’s July 2024 5-Year IT Data Center Capital Expenditure Forecast Report, the four largest U.S. cloud service providers – Amazon, Google, Meta and Microsoft – will account for half of global data center capital expenditure as early as 2026.
The report, which includes server capital expenditure and server shipment forecasts for the Top 4 US Cloud, Top 4 China Cloud, Top 3 Tier 2 Cloud, Rest-of-Cloud, Telco and Enterprise customer segments, also forecasts that global server revenue will reach nearly $0.5 trillion by 2028, with accelerated servers likely to account for more than half of that total.
“As the industry continues to evaluate the potential return on AI-related investments, there is a strong effort being made in the ecosystem to achieve long-term, sustainable growth in capital expenditure,” Fung noted.
Like salt and pepper, AI and liquid cooling travel together
The projected surge in AI infrastructure spending is entirely consistent with Dell’Oro Group’s study earlier this summer, which said the data center liquid cooling market has reached an inflection point and that mainstream adoption of liquid cooling is expected to begin in the second half of 2024.
The analyst predicts that this trend, which is weakening from time to time, will continue to strengthen over the next five years (2024-2028), creating market opportunities worth over $15 billion.
“After five years of monitoring the data center liquid cooling market, this technology is finally moving from a niche technology used in certain market segments to a mainstream solution,” noted Lucas Beran, research director at Dell’Oro Group.
Beran explained, “In the past, liquid cooling vendors have touted improved efficiency and sustainability as factors for adopting this technology. While these benefits still hold, it has been shown that improved thermal management performance to meet the particularly demanding thermal requirements of high-end processors and accelerated servers is the current driving force behind the adoption of this technology.”
According to Dell’Oro’s expanded Data Center Liquid Cooling research report, CoolIT Systems, Boyd and Motivair were the top three data center liquid cooling vendors by revenue in 2023.
The report identified single-phase direct-to-chip liquid cooling (DLC) as the leading liquid cooling technology for data centers.
“As this (technology) is introduced, it is the single-phase direct-to-chip (DLC) liquid cooling implementations that will be the first to scale,” Beran confirmed.
He continued, “This is the result of many years of adoption in the high-performance computing (HPC) industry, which has helped build a more mature vendor ecosystem and end-user expertise for deploying and maintaining the technology. In addition, NVIDIA has specified single-phase DLC as the cooling technology to support its upcoming GB200 compute nodes.”
This trend is expected to continue throughout the forecast period; however, a significant increase in sales is also forecast for the two-phase DLC and single-phase immersion segments during this period.
Meanwhile, the report found that: While the enterprise customer segment, including HPC, led the data center liquid cooling market in 2023, going forward, the service provider customer segment (including the researcher’s top 10 designations of cloud, rest-of-cloud, colocation, and telco) is projected to significantly outpace enterprise growth in terms of liquid cooling adoption.
