Analyst Finds AI Boom Lifts Hyperscale Cloud Spend, Propels Data Center Infrastructure, As NVIDIA Presides

April 10, 2024
We look into a trio of ongoing cloud and AI data center sector reports recently released by industry analyst Dell'Oro Group.

A trio of ongoing data center sector reports released last month by Dell'Oro Group, always a good market barometer for the telecommunications, security, networks, and data center industries, shouldn't pass unnoted.

The firm predicts that AI investments will lift hyperscale cloud capex 17% in 2024, with AI infrastructure in the enterprise also seen gaining momentum.

A separate report on data centers' present AI server phenomenon found that NVIDIA led in both server and storage component revenues for last year.

The firm also discerned a record year for the data center physical infrastructure market, amounting to 16% growth for 2023. Among liquid cooling vendors, Vertiv was cited for its notable volume of shipments in the Fourth Quarter.

Capex Jumps Double Digits 

Dell’Oro Group’s 4Q 2023 Data Center IT Capex Quarterly Report projects that the top 4 US hyperscalers, including Amazon, Google, Meta, and Microsoft, will each increase their data center capex by double digits in 2024. 

The report details the data center infrastructure capital expenditures of each of the ten largest cloud service providers, as well as the rest-of-cloud, telco, and enterprise customer segments. 

Dell'Oro forecasts server and storage systems revenue to grow by 18% in 2024, as the product mix shifts to AI-optimized servers and to server platforms, featuring the latest x86 CPUs from Intel and AMD, as well as ARM CPUs.

Dell'Oro's 4Q 2023 Data Center IT Capex report found further that Dell led all OEMs in server revenue in 2023, followed by HPE and IEIT Systems. 

Meanwhile, the analyst noted that last year, the revenue share of the white box server vendors surpassed that of the top 3 server OEMs.

Baron Fung, Sr. Research Director at Dell’Oro Group, confirmed that, after growing by a slim 4% in 2023, worldwide data center capex is this year projected to rebound to double-digit growth.

“While accelerated computing for generative AI applications will be the front-runner in data center investments, we expect a modest recovery in general-purpose servers and storage demand following a period of steep correction," said Fung. 

He added, "Until last year, the hyperscalers led the way for AI-related investments. This year, we expect accelerated systems to account for an increasing part of server OEM sales and carry a significant backlog as enterprise customers deploy AI workloads."

GPU, Custom Accelerators Jump 224%

Dell'Oro's 4Q 2023 Data Center IT Semiconductors and Components Quarterly Report found that strong demand for AI servers drove revenues for GPU and custom accelerators by a whopping 224% in 2023.

In addition to continued momentum for AI infrastructure this year, the analyst said it expects a broad recovery for the server and storage system component market "as some of the hyperscale cloud service providers enter an expansion cycle, and enterprise IT spending gradually unfreezes."

Fung noted, “The accelerator market is set to maintain strong growth momentum as the hyperscale cloud service providers deploy next-generation AI infrastructure for larger training models and increasing inferencing demands."

Fung added that enterprise adoption of AI applications is rising, driving the need for infrastructure in both public cloud and private data centers. 

"With major product updates every two years, this market demands frequent infrastructure replacements, leading to higher capital investments," he said. "Furthermore, the recovery in the general-purpose computing and storage component market is underway after an extended correction." 

Fung said that fourth-generation CPUs from Intel and AMD, expected to ship in high volumes this year, will enable end-users to realize benefits in server efficiency and footprint optimizations. 

He further forecast pricing for commodities such as memory and storage drives to also rise this year, as supplies normalize, while also benefiting from the deployment of new server architectures.

NVIDIA Dominates

The 4Q 2023 Data Center IT Semiconductors and Components report from Dell'Oro Group stated that NVIDIA led in server and storage system component revenues in 2023, driven by sales of GPU accelerators, followed by Intel and Samsung. 

 As evidence of the shift towards accelerated computing, the report noted that accelerator revenues surpassed CPU revenues for the first time last year.

GPU revenue is forecasted to achieve strong double-digit growth in 2024. 

Fung opined, "Although NVIDIA currently dominates this market, potential challenges arise from new competitive offerings by AMD and Intel, coupled with the emergence of custom accelerators by major cloud service providers."

The analyst also discerned smart NIC revenues growing by more than 50% in 2023, "driven by strong hyperscale adoption for both AI and non-AI use cases."

DCPI Also Booming On Back of AI

For its part, Dell'Oro's 4Q 2023 Data Center Physical Infrastructure Quarterly Report discerned a record year of 16% revenue growth for the segment in 2023. The report stated that Eaton, Munters, and Mitsubishi Electric led all vendors in market share gains in 4Q 2023.

According to Lucas Beran, Research Director at Dell’Oro Group, “In my nearly decade-long coverage of the DCPI market, 2023 marked the highest year of revenue growth I’ve observed. This growth was primarily the result of vendors fulfilling pandemic induced backlogs delayed by supply chain constraints, with a marginal contribution from sales linked to AI workloads.” 

Beran added, “This is because building new data center facilities generally takes 18 – 24 months, and new purpose-built facilities to support AI workloads are expected to start materializing in the second half of 2024."

Only the Beginning

Dell'Oro noted that evidence indicates that such deployments are nearing. 

The new report highlights how Vertiv, as the market share leader in data center thermal management, secured its first quarter of notable liquid cooling deployments during the reporting period, which is correlated to higher TDP processors associated with accelerated computing. 

"This is only the beginning, as Vertiv plans to increase liquid cooling manufacturing capacity by 45 times in 2024," said Beran. "This underscores the critical role that data center power and cooling systems play in our increasingly digital world."

Hardware Sales Bifurcation

Interestingly, the analyst claims that bifurcation in hardware sales became more prominent in 4Q 2023, with product growth for platforms such as single-phase UPS, IT racks and rack power distribution notably slowing. 

The research found that, for the Fourth Quarter, larger system sales, such as 3-phase UPS, thermal management and facility power distribution platforms, grew at much faster rates.

The report noted that while DCPI revenue growth continued to decelerate in Q4 of 2023, the segment still maintained double-digit year-over-year growth.

Looking ahead, Dell'Oro forecasts worldwide DCPI market growth to moderate in the first half of 2024 -- but to accelerate through the second half of the year, as physical infrastructure deployments related to AI workloads increase.

Speaking of data center physical infrastructure, at its GTC event last month, NVIDIA unveiled what it called digital blueprint for building future data centers.

On the show floor, NVIDIA demoed a fully operational, large data center cluster based on its GB200 NVL72 liquid-cooled system. The system consists of two racks, each containing 18 NVIDIA Grace CPUs and 36 NVIDIA Blackwell GPUs, connected by fourth-generation NVIDIA NVLink switches.

NVIDIA demoed this fully operational data center as a digital twin in NVIDIA Omniverse, a platform for connecting and building generative AI-enabled 3D pipelines, tools, applications and services. 

The Omniverse digital twin platform is supported by vendors including Ansys, Cadence, PATCH MANAGER, Schneider Electric, Vertiv and others, setting foundation for highly efficient AI infrastructure.



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About the Author

Matt Vincent

A B2B technology journalist and editor with more than two decades of experience, Matt Vincent is Editor in Chief of Data Center Frontier.

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