In North America, there is a growing trend of increased investment in new data center capacity development and usage. The year 2023 marks a crucial period with a notable surge in new construction projects, coinciding with historically low data center vacancy rates. This surge is driven by the escalating demand for cloud services and the rising popularity of AI-based products and services. As a result, we anticipate a positive impact on revenue and profits within the data center ecosystem, benefiting major cloud providers, coworking service operators, and suppliers of essential components such as networking and storage.
The Vitality of Restaurants
During the first half of 2023, data center construction in North America saw a 25% year-over-year increase, fueled by AI advancements and substantial investments from prominent tech firms. In the primary data center markets across the United States, colocation service prices witnessed a significant surge of 20–30% year-over-year due to limited data center capacity. This trend is projected to intensify further as the demand for computational power for AI, automation, and IoT applications continues to grow. Leveraging emerging solutions could potentially boost profits for data center enterprises in the upcoming quarters.
Expansion of Data Center Assets by Hyperscalers
Hyperscale companies including Microsoft, Amazon, Google, Meta Platforms, IBM, and Oracle collectively invested over $154 billion in capital expenditures in the previous fiscal year. Although there was a slight 2.1% decrease in spending compared to the previous year, it still represents a substantial increase of 25% from 2021 levels. These hyperscalers currently operate nearly 900 data centers worldwide, constituting 37% of the global data center capacity. A significant focus lies on expanding power capabilities, with an estimated addition of 26 million square feet of data center space by hyperscalers and coworking service providers in 2023. Microsoft leads the pack with 24 ongoing construction projects across eight countries, followed by Google and Amazon with 15 projects each. The optimization of AI data centers is expected to persist, with Meta revamping its infrastructure to accommodate AI workloads and planning further investments in the coming quarters. Meta’s initiatives include developing supercomputers to support augmented reality, knowledge systems, and language processing in real-time, along with expanding its proprietary AI accelerator chip deployment in new data centers and establishing dedicated AI training clusters.
The demand for AI-centric systems is on the rise, driven by the increasing applications of relational AI. This trend presents opportunities for technology vendors specializing in data-intensive solutions and AI processing. Nvidia, a leading provider of AI chips for data centers, experienced a remarkable 60.3% year-over-year increase in overall profits. Moreover, investments in data center startups are projected to grow by approximately 30% annually, reaching a pinnacle of $165 billion by 2030.
Profit Prospects for Coworking Service Providers
Another significant segment of the data center market comprises coworking service providers, catering to various large enterprises from shared facilities. These providers manage 23% of the total data center capacity and 18.5% of hyperscale data centers globally. Colocation companies such as Digital Realty, Iron Mountain, Equinix, DataBank, and NextDC play a crucial role in stabilizing the data center industry by offering rapid power solutions to businesses. In the first half of 2023, colocation services added 4.6 million square feet of new capacity to the North American data center market, marking a 9.5% year-over-year increase. Despite concerns about potential oversupply and rental pricing complexities, the substantial 20–30% year-over-year surge in rental rates in key U.S. data center markets during the first half of 2023 was primarily driven by capacity constraints.
The evolving landscape of generative AI models, in conjunction with human-generated data, machine learning, and system-based data technologies, is expected to propel the data industry into a new phase, sustaining high demand for data center services. Favorable pricing dynamics are anticipated to counterbalance the challenges posed by higher borrowing costs, enabling colocation providers to maintain competitive pricing strategies.
The data center market is witnessing heightened merger and acquisition (M&A) activities, with industry leaders commanding rising premiums. Notable transactions in 2022 include the \(15 billion acquisition of CyrusOne by private equity investors and DigitalBridge’s \)11 billion purchase of Switch, reflecting the industry’s robust growth trajectory.
In Conclusion: A Rapid Evolution in the Data Center Sector
To meet the escalating demand for agile cloud computing and AI solutions, hyperscalers and coworking service providers are heavily investing in infrastructure development. Despite economic challenges and increased borrowing costs, the recent surge in construction activities and AI optimization efforts within data centers underscore the critical role of this infrastructure and its potential for supporting growth in essential services. The data center industry and its broader ecosystem are well-positioned for sustained growth over the coming years as borrowing costs stabilize and data-intensive AI applications become more prevalent.
