Growth Opportunities in the Data Center Services Industry, 2024

Impact of the Top 3 Strategic Imperatives on the Data Center Services Industry

Disruptive Technologies

Why

• Enterprise adoption of artificial intelligence (AI) and machine learning (ML) technologies continues to accelerate the demand for compute and storage infrastructure, thereby driving the need for colocation services.

Frost Perspective

• AI and ML workloads will drive the need for scalable infrastructure and design that support high-density colocation capabilities. While legacy infrastructure may not be best suited for emerging requirements, AI creates new growth opportunities for colocation service providers to address enterprise needs through best-in-class AI-ready data centers.

Transformative Megatrends

Why

• Achieving sustainability goals is a strategic priority for governments and enterprises. Given the high degree of impact data center facilities have on environmental, social, and governance (ESG) goals, enterprises are increasingly considering the sustainability focus of data center service providers as a key selection criterion.

Frost Perspective

• Data center service providers are rapidly aligning with the transformative megatrend of sustainability and focusing on leveraging renewable energy sources. They are driving greater energy efficiency through better data center designs and investing in emerging technologies to deliver greater customer value.

Competitive Intensity

Why

• While the data center industry’s competitive landscape has evolved significantly over the years, the competitive intensity continues to rise, with carrier-neutral service providers expanding facilities and entering new regions to monetize the opportunity.

Frost Perspective

• Data center service providers are creating strategic differentiation by building purpose-built facilities to enable training of AI foundation models, strategically located to support lower latency for effective inference.

Growth Drivers

• Colocation by public cloud service providers continues to drive hyperscale demand and will be a key growth driver during the forecast period. AI and ML adoption will accelerate the demand for colocation services.
• AI and ML workloads demand significant compute processing for model training and storage capacity, accelerating the demand for colocation IT load capacity from enterprises across industry verticals.
• Besides ML/LLM training, the need for real-time inferencing will drive the demand for colocation facilities at edge locations.

Growth Restraints

• Limited availability of land and power can restrain building data center facilities in several strategic locations to address the high growth in demand.
• Rapidly evolving data center technologies and the expanding landscape also demand design and operational talent/skill sets, which may be a key growth restraint in several emerging markets.
• The increasing competition in the data center ecosystem will restrain growth in several markets and impact the pricing of colocation services.