Why hyperscale data center capex might tail off in 2023

Dec. 15, 2022
Despite the hyperscale data center segment being on track for 28% growth in 2022, Dell'Oro Group predicts a period of "cloud deceleration" for 2023.
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According to a newly published market research report by Dell’Oro Group, hyperscale data center capex is on track for 28 percent growth 2022.

This finding aligns with the analyst's recent optimism surrounding the segment, when for Q2 of 2022 it reported discerning "staggering" data center switch sales at the year's halfway point.

However, the market and technology analyst for the telecommunications, security, networks, and data center industries says in the new report to expect that cloud service providers will enter "a digestion cycle" in 2023.

 Baron Fung, Research Director at Dell’Oro Group, explained: "Data center capex has grown double-digits for the fifth consecutive quarter, led by the US hyperscalers’ investments in new data center footprints. With supply improvements in the recent quarter, vendors were able to reduce backlog significantly in the rest of cloud and enterprise markets. However, we anticipate growth headwinds ahead, as the hyperscalers wind down on their expansion cycle, and enterprises tighten IT capital spending in light of an uncertain business climate."

The new report warns that despite upcoming server architectural changes that will drive long-term data center investments, data center capex growth is projected to grow in just single digits during 2023.

Meanwhile, Dell'Oro Group's 3Q 2022 Data Center IT Capex Quarterly Report also notes that China cloud and enterprise data center markets are undergoing deep spending cuts.

The new report implies a market dynamic somewhat at odds with the analyst's forecast earlier this year that hyperscale data center capex spend is on track to double over next 5 years. To wit, in its January 2022 Data Center IT Capex 5-Year Forecast Report, Dell’Oro Group predicts that increased investment will push total global data center capex to $350 billion by 2026.

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