The major hyperscalers and cloud providers are forecast to spend 25 percent more on datacenter infrastructure this year to $18 billion following record investments in the opening three months of 2022.
This is according to Dell’Oro Group research, which found new cloud deployments and higher per-unit infrastructure costs underpinned capex spending in Q1, which grew at its fastest pace in nearly three years, the report found.
Datacenter spending is expected to receive an additional boost later this year as the top four cloud providers expand their services to as many as 30 new regions and memory prices trend upward ahead of Intel and AMD’s next-gen processor families, Dell’Oro analyst Baron Fung told The Register
Dell’Oro credits ongoing strength in the datacenter segment to an extended consumption cycle triggered by pandemic supply chain constraints. Fung notes the record capex recorded this quarter was the direct result of higher average selling pricing, as opposed to increased unit volumes.
“Originally, the sentiment was that supply chain would stabilize in the second half of this year, but that doesn’t appear to be the case anymore,” he said.
While Fung argues the cloud and hyperscalers are well-equipped to mask higher prices due to the scale at which they’re deploying hardware, most enterprise customers aren’t so lucky.
“The growth this year, outside of the hyperscalers, is mostly driven by higher cost,” he emphasized.
Most enterprises are saddled with fixed capex budgets, and higher prices mean enterprises can afford few units and therefore have less capacity, he added. As a result, Fung predicts public cloud may become a more attractive option over the next year, as enterprises look for ways to smooth out extended lead times and higher infrastructure pricing.
One area to watch, however, is the rise of accelerated computing, as AI/ML deployments ramp up in preparation for things like the Metaverse, Fung said. “From a unit perspective, accelerated computing is still pretty small, but from a dollar perspective, it’s a double-digit percentage of all datacenter spending.”
And while accelerated computing largely remains isolated to the hyper scale and cloud providers, Fung expects that as enterprises become more comfortable with these workloads, more will start deploying infrastructure in their own datacenters.
Looking ahead, Fung anticipates datacenter capex will remain high throughout 2022 as demand continues to outstrip supply. However, he expects this to begin trailing off toward the end of 2023 as the supply chain stabilizes.
“It’s going to be a climate of uncertainty from a supply chain perspective,” he said of the next few quarters. ®