AI's rapid rise keeps on grabbing headlines—and rightly so. However, there's an often-overlooked corner of the tech sector that's just as important and is also seeing explosive growth.
McKinsey & Company projected the industry would grow 10% a year through 2030, with global spending on the construction of new facilities hitting $49 billion (Jan 2023). That forecast sounds low to me. After all, data centers have upended the plodding 2% to 3% growth model for utilities, and the data center hyperscale market is projected to grow 20% annually.
Here are five trends that will keep driving its expansion and evolution in 2024.
1. The AI gold rush boosts data center demand, but a shakeout looms.
AI is everywhere, and data center providers—whose real estate and digital infrastructure are the picks and shovels of that gold rush—are backstopping it. Look for the stampede to intensify in 2024. A vivid example of AI-driven demand is Nvidia, whose graphics processing units power the vast majority of AI applications. The chip maker is expected to deliver 100,000 AI server platforms this year, but total units shipped could surge to 1.5 million by 2027. Combined, it would use more than half as much energy as today's total consumption by data centers, according to one estimate.
2. Cloud and AI compete for data center bandwidth.
AI might be hogging the data center spotlight, but demand from cloud services providers (CSPs) will remain a dominant force in 2024. Cloud adoption has risen more than expected in recent years, driving ever-larger deals with data centers.
Meanwhile, as large enterprises adopt AI and other digital tools, they'll take anything not already gobbled up by cloud and AI players. No wonder demand for data center capacity began outstripping supply back in late 2022.
As AI and cloud grow side-by-side, the lines have blurred. For example, because all CSPs participate in AI, their data center needs for it and cloud are mixing. That poses a challenge for providers. To meet growing AI demands, CSPs sometimes change the usage specified in their contracts. Providers that roll with the punches will fare better.
3. International data center expansion ramps up.
Data center providers and their clients will see more of the world this year. With traditional tech hubs squeezed for capacity, customers who are less sensitive to latency—how long it takes for data to travel from one place to another—are looking at other options. For example, a client specializing in AI training might find a new home in an emerging tech center or even abroad.
4. Sustainability becomes more than a buzzword.
Data centers are drawing attention for their energy and water use, which will only keep rising because of increased demand. It's one reason forward-looking providers aren't shying away from sustainability. Instead, they're taking action to shrink their environmental footprint. Expect to see more such efforts in 2024, as pressure from customers, investors and regulators turns sustainability into a competitive advantage.
5. Innovation keeps the industry moving forward.
Unprecedented demand for digital infrastructure is driving technological innovation. Customers are seeking to optimize efficiency and flexibility in a tight market, and that's increasingly pushing providers to develop new solutions and approaches. This includes everything from leveraging alternate power sources for added reliability to embracing the technological and infrastructure changes needed to accommodate AI. Thus, it makes a company's services stickier, drives additional revenue and creates a competitive moat—rewarding investors.