Hyperscalers gain decisive control of enterprise compute

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Dive Brief:

  • Hyperscalers now control 41% of global data center capacity, eclipsing the 37% that remains on-premises, Synergy Research Group said in a Wednesday report. The number of large cloud data centers recently topped 1,000, the firm found.
  • SRG expects the shift to drive 60% of total capacity into the hands of cloud providers by 2029, leaving just 20% on-premises. The other 20% will be housed in colocation facilities, according to the analysis.
  • “The rise of generative AI technology and services will only exacerbate those trends over the next few years, as hyperscale operators are better positioned to run AI operations than most enterprises,” SRG Chief Analyst John Dinsdale said in the report.

Dive Insight:

Enterprise appetite for cloud services and AI capabilities is driving a hyperscaler data center gold rush.

AWS, Microsoft and Google — cloud’s three global behemoths — are fueling an infrastructure building boom expected to push annual data center capital expenditures beyond $1 trillion by 2028, according to Dell’Oro Group research.

In addition to initiating multibillion-dollar data center buildouts, cloud providers are leaning on colocation facilities to satisfy demand, rapidly devouring capacity as it comes online. Nearly half of hyperscale capacity resides in leased locations, according to SRG.

Amazon President and CEO Andy Jassy expressed the company’s desire for more AWS computing capacity during a recent earnings call. Microsoft has turned to third-party providers to handle AI workloads, CFO Amy Hood said, speaking at the company’s Q4 2024 earnings call in July.

Hyperscaler leasing activity helped trigger a space crunch during the first three months of the year, according to CBRE Group. North America’s largest data center market, Northern Virginia, saw vacancy rates drop below 1% despite 18% year-over-year inventory growth. Data center rental rates increased 20% year over year in North America in the first quarter, the research found.

Construction is underway to relieve the workload bottleneck. SRG expects public and private cloud capacity to nearly triple in the next six years, as businesses move workloads to cloud and to third-party facilities.

“Enterprises are also choosing to house an ever-growing proportion of their data center gear in colocation facilities, further reducing the need for on-premise data center capacity,” Dinsdale said.