AI applications drive strong demand for data centre infrastructure

The data centre physical infrastructure (DCPI) market revenue grew 15% year-on-year in Q2 2023, as AI applications usher in new demand and vendor backlogs continue to grow, according to the Dello’Oro Group.

While this increase is noted as a deceleration in revenue growth for the first time in six quarters, the research and analyst house reports that supply chain limitations are beginning to ease and price realisation are beginning to diminish. Combined with the new AI driven demands and renewed demands from vendor backlogs this has resulted in vendors raising their guidance.

“The DCPI market has blown past our already elevated expectations in 1H 2023.” said Lucas Beran, Research Director at Dell’Oro Group. “Sales growth has been notably strong, but what has been most surprising is the strength in new orders which pushed vendor backlogs to record highs at the end of 2Q 2023. This isn’t isolated to a select group of vendors, as nearly every public vendor has touted continued backlog growth while raising their 2023 guidance.”

Beran adds “This unprecedented rate of growth in 1H 2023 raises questions about a potential digestion cycle in the near term. However, existing backlog levels, record low data center vacancy rates and the emergence of generative AI applications are continuing to drive demand over the medium term. Any potential near-term weakness would be more a factor of tough Y/Y comparisons than weakening demand”.

Highlighting regions and players, the Group states the deceleration in revenue growth to low single-digit rate in the Caribbean and Latin America while North America, Asia Pacific (excluding China), Europe, the Middle East, and Africa regions all maintained their double digit growth. Meanwhile, China’s revenue growth was “relatively flat” on a year-on-year basis. The exact figures behind these interpretations were not shared in the release.

In terms of players, the research group commends Vertiv who significantly outpaced market growth taking over 3% market share. Looking at product growth it was a mixed bag, but the easing supply chain did accelerate growth in some products more than others. The research house highlights growth in thermal management and cabinet power distribution units (PDU) which are used to supply power to data cabinets and server rack equipment.

In line with these market conditions, the analyst house has further revised up its 2023 forecast (presumably full year) to over 13%.

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