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As AI infrastructure spending continues to gain momentum despite ongoing sustainability efforts, it will fuel ongoing growth in the data center industry.
A new Dell’Oro report forecasts that worldwide data center capex will surpass $1 trillion by 2029.
Worldwide data center capex is forecast for a CAGR of 21 percent by 2029.
By 2029, accelerated servers for AI training and domain-specific workloads could represent nearly half of data center infrastructure spending.
“While AI spending has yet to meet desired returns and efficiency improvements, long-term growth remains assured, driven by hyperscalers’ multi-year capex cycles and government initiatives such as the $500 billion Stargate Project,” said Baron Fung, senior research director at Dell’Oro Group.
Fung added that while new AI developments like DeepSeek are shaking up the market, there’s a growing effort to enhance the approach to creating new data centers.
“Although recent advancements in AI model training efficiency from DeepSeek have been disruptive, innovations have been in progress for some time to drive greater efficiencies and lower the total cost of ownership in building and operating AI data centers,” he said. “Key areas of focus include advancements in accelerated computing through GPUs and custom accelerators, LLM optimizations, and next-generation rack-scale and network infrastructure—all crucial to enabling sustainable growth from both a cost and power perspective.”
Custom accelerators challenge GPUs
Another key element in shaping the data center market spending trend will be the role of accelerators.
Data Center accelerators are hardware devices that speed up computers by processing data. They are designed to be energy efficient and can replace multiple CPUs.
Dell’Oro forecasts that by 2029, accelerators will lead the market in revenue, followed by storage drives and memory, with CPUs trailing behind these technologies.
The research firm said it expects custom accelerators are also poised to outpace commercially available accelerator such as GPUs in volume during the forecast period.
“We expect the hyperscalers to transition from commercial GPUs to custom accelerators over time, enhancing efficiency and reducing costs,” Fung said.
An increase in AI deployments will drive growth in the memory (HBMs) and storage drive (SSDs and HDDs) markets.
Meanwhile, the Ethernet network adapter market for supporting back-end networks in AI compute clusters is projected to grow at a 40 percent CAGR by 2029.
Tier 2 challengers
Data center spending won’t just be a large-player game.
A growing base of Tier 2 cloud service providers will also be expanding the reach of data centers.
“While the Top 4 US-based cloud service providers (SPs)—Amazon, Google, Meta, and Microsoft—will account for nearly half of global data center capex in 2025, select Tier 2 cloud SPs are poised to increase capex significantly over the next several years,” Dell’Oro said.
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Sean Buckley
Sean is responsible for establishing and executing the editorial strategies of Lightwave and Broadband Technology Report across their websites, email newsletters, events, and other information products.