Hyperscalers become the dominant data center capex growth engine

Hyperscale cloud service providers are going to remain a big factor in data center growth. A new Dell’Oro report forecasts that worldwide data center capex is projected to grow at a 21 percent CAGR.

The research firm said that it anticipates the hyperscale cloud service providers to account for half of the $1.2 trillion global data center capex by 2029.

A large portion of capex spending will come from the top four US-based cloud service providers (SPs)—Amazon, Google, Meta, and Microsoft. Dell’Oro said these four companies will make up nearly half of global data center capex in 2025.

This will be followed by the Rest of Cloud segment, consisting of neo-cloud and GPU-as-a-Service providers, with a CAGR of 39 percent.

Baron Fung, senior research director at Dell’Oro Group, said that the hyperscalers are looking at data center solutions that can help them to accelerate their reach economically.

“Hyperscalers are leading the charge with vertically integrated solutions and custom architectures aimed at optimizing performance and lowering the cost of compute,” he said. “Combined with ongoing investment from both public and private sectors, this is fueling a global wave of data center expansion.”

Baron Fung, senior research director for Dell'Oro Group.

The power factor

As hyperscalers look to scale new and existing facilities, it will require more electric power.

Data center power demands are prompting large utilities like Pacific Gas and Electric (PG&E) to act.

PG&E recently announced it was proactively working to serve 10 gigawatts (GW) of new electricity demand from data center projects over the next ten years, which it estimates is enough energy to power approximately 7.5 million homes simultaneously.

The 10 GW in PG&E's data center project pipeline reflects a significant increase from the 8.7 GW of data center demand PG&E reported in May and the 5.5 GW the company reported in February.

Fung said hyperscalers and colocation providers will also be scaling the amount of power they need to support the growth of new facilities.

“Hyperscalers and colocation providers are expected to add over 50 gigawatts of new capacity over the next five years,” Fung said. “While a short-term slowdown may occur in 2026, long-term investments are expected to sustain growth through the forecast period.”

The AI factor

AI will be the primary driver of capex spending by data center providers.

Accelerated servers for AI training and domain-specific workloads could represent approximately half of data center infrastructure spending by 2029.

“We’ve raised our forecast for data center infrastructure spending, driven by the rapid adoption of AI,” said Fung. “GPUs and custom AI accelerators now account for roughly one third of total data center capex, making them the single largest driver of growth.

He added that “spending is also expected to remain strong across supporting infrastructure, including racks, general-purpose compute, storage, networking, and physical facilities.”

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