In the lead-up to Data Center World, Omdia reached out to Vertiv for its perspective on the future of data centers and, by association, data center capex spending. Economic headwinds are front and center in the daily news, and the spate of layoff announcements, particularly from hyperscalers, is ringing alarm bells for many.
While our Cloud & Data Center Research Practice team at Omdia analyzes the numbers tracking data center equipment shipments, revenue, and capex spend, it is the data center physical infrastructure solutions vendors that have a unique insight into the future. These vendors and their customers build close relationships as a means of planning for future needs in the critical task of hedging against supply chain challenges.
Giordano Albertazzi, Vertiv CEO and president, Americas, provided many insightful thoughts on the future of the data center, but summarized it like this: "The markets are experiencing healthy growth, and accelerated investment in AI will drive further data center infrastructure demand."
No one can deny the acceleration of AI initiatives across the industry and in particular amongst hyperscalers. This translates to additional data center physical infrastructure to accommodate the higher power density and associated cooling requirements.
What Is the Future of Data Center Expansion?
Regarding the momentum of data center expansion, Albertazzi made it clear that the markets in general are healthy. "We are witnessing continued investment across hyperscale, colo, and enterprise markets," he said. "Some hyperscalers are moderating their capex growth, but it is still healthy growth."
Albertazzi pointed out that hyperscalers "are moderating their capex growth," which does not mean lower capex; rather their increases in capital expenditures are not as aggressive as the last couple years.
"Additionally, we expect to see some market re-acceleration in the second half of the year," he said. "Some cloud/hyperscale customers are digesting capacity; others are using this as a competitive advantage to accelerate their buildouts. At the same time, the expected acceleration in investment in AI will turn into a net infrastructure capacity demand acceleration."
Are Equipment Pre-commitments Becoming More Commonplace?
Albertazzi also touched on whether cloud and colocation customers are extending their timeframe for equipment pre-commitments.
"What we are observing in the industry is a normalization of the orders pattern," he said. "In 2022, the large hyperscale and colocation customers were giving us orders that covered their requirements for extended periods, to secure the capacity they needed — some going out 18+ months, due to the challenging supply chain and lead time situation in the industry."
As cloud and colocation data center builders accelerated construction to meet fast growing cloud services and colocation capacity demand, many embraced the practice of securing dedicated physical infrastructure equipment into the future. At the core of this trend is the not-so-subtle fact that a lack of data center capacity can have a fast and dramatic impact on potential revenue. Beyond that reality, the supply chain fallout resulting from the COVID-19 pandemic was a rude awakening for companies that were not pre-committing to physical infrastructure equipment, and today the practice is more commonplace.
"Now we are seeing customers are more comfortable releasing orders at a more traditional cadence," Albertazzi said. "This does not impact the volume or timing of what we will ultimately ship to customers. This normalization is healthy for our business and the industry."
Is It Business as Usual for Data Center Equipment Buyers?
"Has anyone ever known how to define business as usual in our industry?"
Touché CEO Albertazzi! There is a long line of participants in any given data center construction project from the real estate folks that sell the land or buildings, to those that perform final commissioning and acceptance. In between are a litany of service providers from architects, designers, engineers, subcontractors, and many more in the ecosystem. A data center construction project is fraught with opportunity for complications and potential delays.
"While we are cognizant of the headlines around tech and general uncertainty around the macro environment, we continue to see encouraging market opportunity," Albertazzi said. "AI applications demand a net capacity increase and higher power densities that are driving a demand for new infrastructure technologies to efficiently keep pace — such as air/liquid hybrid cooling environments and a transition to liquid-ready facility design.
"Already today, we have AI infrastructure orders in our backlog. I don't believe there is anyone else in the data center infrastructure space as well-positioned as Vertiv, given our expertise, product and technology portfolio, infrastructure system view, and advanced controls systems."
There's no question the AI arms race is heating up. Google AI was announced in 2017. The metaverse was revealed in 2021. ChatGPT was released publicly in November 2022 and, according to some estimates achieved 100 million active users per month in January 2022. In 4Q22, Microsoft commented, "Our data center investments continue to be based on near-term and longer-term customer demand, including AI opportunities."
Nobody has an operating crystal ball, but in the end, physical infrastructure equipment suppliers like Vertiv and its peers are in the eye of the storm. They possess a confidential relationship with the largest data center builders in the world, and their insight is priceless in terms of the long-term view of the industry.
