Cloud giants overtake on-premise systems in a data center power shift
Hyperscalers are now the dominant force in the global data center market, controlling 41% of total capacity—a major change from the traditional reliance on on-premise data centers, which now account for just 37% of the global total.
Growth of large cloud data centers has been rapid, with the number of such facilities surpassing 1,000, according to Synergy Research Group (SRG).
Hyperscale data centers are vast in both size and in capability, offering the resources and efficiency that most enterprise on-premise solutions cannot match. This points to a broader move toward centralization in the cloud, where hyperscalers are able to leverage economies of scale, advanced technologies, and global networks to deliver superior performance and flexibility to their customers.
Future forecasts show cloud dominance, on-prem shrinks rapidly
Looking ahead, the trend toward cloud dominance is set to accelerate. SRG predicts that by 2029, cloud providers will manage 60% of all global data center capacity. This points to the growing trust and reliance enterprises place in cloud solutions, driven by factors such as scalability, cost-efficiency, and the need for advanced capabilities like AI and machine learning.
On-premise data centers are expected to see a continued decline, shrinking to just 20% of total capacity.
The remaining 20% is anticipated to be housed in colocation facilities, which offer a middle ground between full cloud adoption and maintaining some degree of direct control over IT infrastructure. These facilities provide flexibility for enterprises that are not yet ready to fully transition to the cloud but still need to optimize their operations and costs.
Generative AI accelerating the shift to cloud-based infrastructure
Hyperscalers are uniquely positioned to support the massive computational demands of AI, providing the scale and resources that most traditional enterprise setups cannot offer.
SRG Chief Analyst John Dinsdale points out that hyperscalers’ extensive infrastructure and investment in AI-specific technologies give them a distinct advantage in this area.
As generative AI becomes more integral to business operations—whether for developing new products, improving customer experiences, or optimizing internal processes—enterprises are increasingly looking to hyperscalers to provide the necessary computing power and flexibility.
This trend cements the role of cloud providers in the digital economy and highlights the diminishing role of on-premise solutions in supporting next-generation technologies.
Hyperscalers spark a data center boom with massive expansion plans
AWS, Microsoft, and Google leading data center expansion
The expansion of hyperscale data centers is being driven primarily by the industry’s biggest players: AWS, Microsoft, and Google. These three giants are at the leading edge of a massive infrastructure boom, investing heavily in the construction of new data centers around the world.
According to research from Dell’Oro Group, annual capital expenditures for data centers are expected to surpass $1 trillion by 2028, driven largely by these companies’ aggressive growth strategies.
This unprecedented level of investment draws attention to the importance of cloud infrastructure in supporting both current enterprise needs and the next generation of digital services. New data centers are expanding their capacity and are incorporating cutting-edge technologies to handle the increasing demands of AI, big data, and global connectivity.
Cloud titans lean on colocation as demand skyrockets
To meet the growing demand for cloud services, hyperscalers are increasingly turning to colocation facilities. Nearly half of hyperscaler capacity is now located in leased facilities, according to SRG.
Colocation offers a strategic solution for cloud providers looking to quickly scale their operations without the time and cost associated with building new data centers from the ground up.
These facilities provide immediate access to power, cooling, and space, enabling hyperscalers to rapidly deploy additional capacity in key markets. This strategy is particularly advantageous in regions where land and resources are scarce or where demand is outpacing the ability to construct new facilities.
Leveraging colocation, hyperscalers can continue to grow their footprint and meet customer needs in a highly competitive market.
Tech giants reveal urgent need for more data center power
Corporate leaders from Amazon and Microsoft have publicly acknowledged the growing need for increased data center capacity to support their expanding cloud operations.
During a recent earnings call, Amazon’s CEO, Andy Jassy, emphasized the company’s ongoing efforts to grow AWS’s computing capabilities, citing the continuous rise in demand for cloud services.
Microsoft CFO Amy Hood, during the company’s Q4 2024 earnings call, discussed the reliance on third-party providers to handle the surge in AI workloads—highlighting the prime importance of scaling data center infrastructure to keep pace with technological advancements and the increasing expectations of enterprise customers.
Ongoing expansion efforts by these tech giants clearly point out the pressing need for comprehensive, scalable, and reliable data center resources for the cloud era.
Space shortages and soaring prices hit data center leasing
Hyperscalers create a space crunch with aggressive leasing
Rapid expansion of hyperscaler leasing activity has led to a major space crunch in data centers, particularly during the first quarter of 2024.
According to CBRE Group, the aggressive leasing by these cloud giants has squeezed the availability of space in key markets, with Northern Virginia, the largest data center market in North America, experiencing vacancy rates dropping below 1%. This sharp decline in available space comes despite an 18% year-over-year growth in data center inventory, illustrating the intense demand for capacity.
As hyperscalers continue to secure large volumes of space to support their expanding operations, other businesses may find it increasingly difficult to find suitable data center locations, further driving the competitive landscape in the industry.
Skyrocketing data center rentals as space runs out
The high demand and limited availability of data center space have also driven up rental rates across North America. In the first quarter of 2024, data center rental rates increased by 20% year-over-year, reflecting the pressure on supply.
As space becomes scarcer, companies are facing higher costs to secure the necessary infrastructure to support their digital operations.
This trend is likely to continue as hyperscalers and other large enterprises compete for prime locations, pushing rental prices even higher. For businesses, this means that careful planning and strategic partnerships with data center providers will become increasingly important to manage costs and guarantee access to the critical infrastructure needed for growth.
Cloud capacity set to explode as public and private clouds expand
Cloud capacity to triple as businesses flock to cloud solutions
Cloud infrastructure growth is set to continue at a remarkable pace, with SRG forecasting that public and private cloud capacity will nearly triple over the next six years—driven by businesses increasingly moving their workloads to the cloud, seeking to benefit from the scalability, flexibility, and advanced capabilities that cloud services offer.
As organizations continue to migrate their operations to cloud environments, the demand for data center capacity will surge, requiring major investments in infrastructure. This is part of a broader shift in the enterprise market, where cloud solutions are becoming the standard for IT operations, and on-premise solutions are being phased out in favor of more agile and cost-effective cloud-based alternatives.
Enterprises flock to colocation, ditch on-premise data centers
In addition to moving to public and private cloud environments, many enterprises are opting to house their data center equipment in colocation facilities. There’s a growing recognition of the benefits of colocation, which offers a balance between maintaining some control over IT infrastructure and accessing the efficiencies and scale of shared facilities.
As noted by SRG’s John Dinsdale, this trend is further reducing the need for on-premise data center capacity, as more organizations realize the cost and operational advantages of co-locating their data center resources.
The move towards colocation is expected to continue, particularly as businesses seek to optimize their IT strategies in an increasingly cloud-centric world.
Final thoughts
As hyperscalers continue to impact enterprise computing, the question for your brand is no longer whether to adapt—but how quickly you can do so. Are you strategically positioned to leverage the power of cloud and AI, or will you be left behind as the digital giants accelerate their dominance?
