Market Overview:

Data Centers are a $215bn global market that grew 18% annually between 2018-2023. AI adoption is expected to accelerate data center growth as AI chips require 3-4x more electrical power versus traditional central processing units (CPUs).

AI adoption is poised to accelerate this growth meaningfully over coming years. BofA‘s US Semis analyst, Vivek Arya, forecasts the AI chip market to reach ~$200bn in 2027, up from $44bn in 2023. This has positive implications for the broader data center industry.

AI workloads are bandwidth-intensive, connecting hundreds of processors with gigabits of throughput. As these AI models grow, the number of GPUs required to process them grows, requiring larger networks to interconnect the GPUs.  See Network Equipment market below.

The electrical and thermal equipment within a data center is sized for maximum load to ensure reliability and uptime. For electrical and thermal equipment manufacturers, AI adoption drives faster growth in data center power loads. AI chips require 3-4x more electrical power versus traditional CPUs (Central Processing Units).

BofA estimates data center capex was $215bn globally in 2023. The majority of this spend is for compute servers, networking and storage ($160bn) with data center infrastructure being an important, but smaller, piece ($55bn). For perspective, data center capex represented ~1% of global fixed capital formation, which includes all private & public sector spending on equipment and structures.

Networking Equipment Market:

BofA estimates a $20bn market size for Data Center networking equipment. Cisco is the market share leader, with an estimated 28% market share.

• Ethernet switches which communicate within the data center via local area networks. Typically, each rack would have a networking switch.
• Routers handle traffic between buildings, typically using internet protocol (IP). Some cloud service providers use “white box“ networking switches (e.g., manufactured by third parties, such as Taiwanese ODMs, to their specifications).

Data center speeds are in a state of constant growth. The industry has moved from 40G speeds to 100G speeds, and those are quickly giving way to 400G speeds. Yet even 400G speeds won’t be fast enough to support some emerging applications which may require 800G and 1.6TB data center speeds.

…………………………………………………………………………………………………………………………………….

Data Centers are also a bright spot for the construction industry. BofA notes that construction spending for data centers is approaching $30bn (vs $2bn in 2014) and accounts for nearly 21% of data center capex. At 4% of private construction spending (vs 2% five years ago), the data center category has surpassed retail, and could be a partial offset in a construction downturn.

Source:  BofA Global Research

………………………………………………………………………………………………………………………..

References:

https://www.belden.com/blogs/smart-building/faster-data-center-speeds-depend-on-fiber-innovation#

Proposed solutions to high energy consumption of Generative AI LLMs: optimized hardware, new algorithms, green data centers

Nvidia enters Data Center Ethernet market with its Spectrum-X networking platform

Co-Packaged Optics to play an important role in data center switches

EdgeCore Digital Infrastructure and Zayo bring fiber connectivity to Santa Clara data center

Deutsche Telekom with AWS and VMware demonstrate a global enterprise network for seamless connectivity across geographically distributed data centers