AI to lift demand for data center services to new heights

Data center services have become an increasingly important part of the world economy, and the market will continue to grow in step with the growth of artificial intelligence (AI). Around 20% of global data center storage capacity is used for AI, according to a market report from Whiteshield and Khazna.

Data centers are at the heart of digital transformation, which is helping to drive a new services economy. The US, Europe, and China are currently the leaders in the data center market, though the US dwarves all other countries, with around 5,375 data centers, accounting for 43% of all global data center business.

The internet and digitalization rely heavily on facilities that store, process, and manage vast amounts of data, making online services and cloud computing possible. These facilities require significant infrastructure, including reliable power, cooling systems, and security, to ensure continuous and efficient operation.

In recent years, foreign direct investment in data centers peaked, with Amazon’s subsidiary Amazon Web Services (AWS) making multibillion-dollar investments in new data center infrastructure in New Zealand and a new cloud computing hub launched in Canada. Google meanwhile has built data centers across many corners of the globe.

The global data center market is estimated to currently have total revenue of around $338 billion. Looking forward, it is expected to grow at a CAGR of around 5.8% to reach above $430 billion by 2028.

Much of that projected growth is destined to be related with AI tools and applications, which have been taking the world by storm in recent years and are likely to continue requiring large amounts of data storage.

There is also likely to be a wave of new tools emerging in the years to come (like technologies that leverage advanced automation, the metaverse, or the internet of things), which will further fuel the need for more data center services.

AI is very energy-intensive and demands advanced hardware, especially for generative AI applications like image and video generation. While conventional data centers are designed with five to 10 kilowatts per rack, AI now requires about 60 or more kilowatts per rack.

The industry will also need more people power, creating a big opportunity for employment. The increase in labor requirements – form planning, construction, to operations – could potentially mean hundreds of thousands of additional full-time employees globally by 2025.

“At the heart of this digital transformation, robust data centers play a pivotal role,” notes the report. “They serve as the backbone of the digital economy, facilitating the seamless flow of data and services across borders. Data centers and data hubs, with their advanced infrastructure and capabilities, are uniquely positioned to meet this demand.”

Philippe Nahas, Partner at Whiteshield, stated: “Investing in robust data center infrastructure is not just about technological advancement; it's a strategic catalyst for economic prosperity and job creation.”

The top data center hubs

While countries like the US, Germany, and the Netherlands remain key players in the data center market, there is a major advantage for less represented geographies: lowest costs.

The report ranked cities based on cost per kilowatt of data center construction and the best bang-for-your buck is to be found in places like Mumbai, where the cost of each kilowatt is around half of what it would cost in Silicon Valley. Other low overhead costs can be found in places like Bogota, Warsaw, Cape Town, Shanghai, and Nairobi, among others.

Just like in most other regions of the world, demand for data centers has been on the rise in the Middle East in recent years as well. A separate report found that digitalization was exploding in countries like the UAE and Saudi Arabia, where some homegrown data center players are doing rather well for themselves.