AI investments to drive data center capex to over $500B by 2027, says Dell’Oro

July 27, 2023
Analyst group forecasts strong growth following a short-term decline in cloud and enterprise capex.

The growing interest in AI could be a boon for the data center segment.

A new report from Dell’Oro forecasts that AI infrastructure spending will propel data center capex to grow 15 percent to $500 billion by 2027. However, the analyst firm anticipates near-term cloud and enterprise capex growth decelerating as the market undergoes digestion.

“Despite near-term data center capex growth headwinds as the major cloud service providers and enterprises optimize their infrastructure, forthcoming technology transitions will stimulate long-term growth,” said Baron Fung, Senior Research Director at Dell’Oro Group. “Most notably, the hyperscale cloud service providers will prioritize their investments toward accelerated systems for AI applications for both their public cloud platform and SaaS offerings.”

Data center optimization

A key trend for data center providers will be optimization.

Datacenter optimization is the strategy employed in the data center facility. To increase operational efficiencies, data center providers are redesigning facilities to decrease power consumption while improving the performance of data center systems.  

Power consumption is the biggest concern in data center optimization.

Dell’Oro expects it will “see continuous optimization across the entire data center stack, with the deployment of next-generation servers featuring high-core counts and deeper memory that are attached to next-generation networks while the rest of the market will invest in accelerated systems more selectively, with most enterprises adopting a hybrid cloud strategy.”

The research firm also expects over 20 percent of the global server deployments in 2027 may be accelerated while the edge computing forecast was trimmed as the ecosystem and compelling use cases have needed to be faster to materialize.

Varied cloud capex variations

The top four cloud providers’ capital expenditures varied in the third quarter. Data Center capex for this group grew, according to Dell’Oro, by about 1%, marking a consecutive quarter of what it said was “low single-digit growth.”

“Growth among the top four companies was mixed, with Amazon and Meta undergoing a capex digestion cycle, while Microsoft and Google are still undergoing an expansion cycle,” Fung said.

For 2023, Dell’Oro projects that data center capex growth for the top four cloud providers will be in the mid-single digits. However, Fung said, "the extent and timing of the digestion cycle for each Cloud SP differs (see sidebar).” 

AI continues to become a factor for cloud providers. Dell’Oro noted that hyperscalers have been dedicating more capital to AI-related investments than general-purpose computing. “We anticipate Top 4 US data center spending to be moderately higher in 2024 as Amazon and Meta return to higher growth levels, and spending on general-purpose compute normalizes,” Fung said. 

For related articles, visit the Data Center Test Topic Center.

For more information on optical components and suppliers, visit the Lightwave Buyer’s Guide.

To stay abreast of optical communications technology, subscribe to Lightwave’s Enabling Technologies Newsletter.

About the Author

Sean Buckley

Sean is responsible for establishing and executing the editorial strategies of Lightwave and Broadband Technology Report across their websites, email newsletters, events, and other information products.

Sponsored Recommendations

New Optical Wavelength Service Trends

July 1, 2024
Discover how optical wavelength services are reshaping the telecom landscape, driven by rapid expansion and adoption of high-speed connections exceeding 100 Gbps, championed by...

ON TOPIC: Innovation in Optical Components

July 2, 2024
Lightwave’s latest on-topic eBook, sponsored by Anritsu, will address innovation in optical components. The eBook looks at various topics, including PCIe (Peripheral...

AI’s magic networking moment

March 6, 2024
Dive into the forefront of technological evolution with our exclusive webinar, where industry giants discuss the transformative impact of AI on the optical and networking sector...

The Journey to 1.6 Terabit Ethernet

May 24, 2024
Embark on a journey into the future of connectivity as the leaders of the IEEE P802.3dj Task Force unveil the groundbreaking strides towards 1.6 Terabit Ethernet, revolutionizing...