With the rise of AI, there are few hotter sectors right now than data centers. What was once a steadily growing but relatively mature sector has become the latest gold rush of the digital era.
The US remains the largest geographic market for data centers, home to seven of the world’s top ten data center hubs and accounting for over 50%. Yet US capacity is still forecast to grow by 15–20% CAGR to 2030. An additional 30–50GW of capacity is expected to come online by the end of the decade – more than doubling existing capacity and accounting for up to 12% of total US power consumption. Elsewhere, while certain traditional hubs are seeing growth slowed by power capacity constraints, it remains full steam ahead in the key UK and German markets, with other regional hubs rapidly emerging in Europe, the Middle East, and South East Asia.
While recent economic uncertainty and developments like China’s open-source DeepSeek have raised some questions about the current capacity buildout, overall, the major hyperscalers remain committed to a ramp up in overall builds albeit with some signs of becoming more selective around particular investments. Amazon, Alphabet, Microsoft and Meta are set to spend over $325bn in 2025 – up from $200bn in 2024. Alphabet (who recently reaffirmed its 2025 capex guidance) and Amazon’s capex forecasts alone exceeded analyst expectations by nearly 30%.
Where to play now
Current sentiment suggests anything linked to data centers is a “no lose” investment – but a more targeted approach can help investors find the most resilient opportunities. The data center ecosystem is not uniform, with different dynamics across segments.
The hyperscaler, colocation and enterprise segments of the market each have distinct growth profiles. Hyperscalers are expected to build as much as 50% of the new capacity by 2030 in the US. They are also increasingly building their own capacity in non-US geographies, a departure from the historic practice of leasing wholesale capacity as necessary from strategic colocation partners. Key colocation players will account for the majority of non-hyperscaler growth going forward, much of which is expected to continue to be leased to hyperscalers.
By contrast, enterprise data centers are set for comparatively modest growth, with their share of overall installed capacity shrinking in nearly all geographies. As a result, businesses with strong relationships with hyperscalers – directly or via colocation providers – are more likely to see the benefit. That said, those same operators may also be more exposed if investment slows, with colocation players often the first to feel any shift in demand.
Other key trends shaping the industry include:
- The move towards fewer, larger campuses concentrating supply chain opportunity among firms with the scale to deliver multi-hundred MW projects.
- Rapid increases in AI rack density driving demand for advanced power distribution / management and cooling, including liquid cooling, creating opportunities for those innovating in energy-efficient solutions.
- Lead times for transformers, switchgear and chillers have more than doubled. Suppliers with access to critical components or ability to flex designs are advantaged.
- Power constraints are pushing developers into new geographies and off-grid solutions – from behind-the-meter generation to temporary bridging with gas. Contractors and suppliers able to adapt are seeing increased demand.
Several parts of the value chain stand out as particularly well-positioned in the current market – either through exposure to the right structural tailwinds or by being less vulnerable to shifts in capex spending behavior and IT trends.
Critical equipment suppliers
Companies providing transformers, switchgear, gensets, UPS, security, racking systems, and other supporting infrastructure are seeing strong growth, driven by rising capex. These infrastructure suppliers are also less exposed to the faster-moving innovation cycles that affect IT equipment.
Engineering firms
The engineering market remains fragmented – particularly in MEP and CSA. Local knowledge and experience with data center builds gives these firms an edge. Many have built long-term relationships with operators and developers who prefer to work with trusted partners.
The longer-term view
Hyperscaler spend has hit record highs in four of the past five years – but the current pace is unlikely to continue indefinitely. While AI training is still largely being addressed through brute-force increases in processing power, new models / approaches suggest that efficiency gains could eventually slow demand for additional capacity.
We’ve seen radical change before in the data center world that has fundamentally impacted the size and shape of demand. Virtualization materially reduced expected demand for physical infrastructure, and the move to the cloud shifted the market from enterprise and retail colocation to hyperscalers and wholesale colocation. Businesses focused on ongoing support, maintenance, and upgrade / replacement cycles – rather than new build – will be better positioned to ride though shifts in the market and for longer-term sustainable growth.
Taking a longer-term view, certain areas of the value chain appear better placed to weather shifts in demand. If the pace of new development slows – whether due to AI training efficiency gains, power constraints, or strategic pullbacks – businesses less reliant on capex cycles, or those with embedded roles in ongoing operations, may prove more resilient. Two areas in particular stand out:
Operations and maintenance services
Independent specialists in electrical, HVAC and other data center infrastructure services are benefiting from a growing installed base – and are less exposed to fluctuations in new capex. Skilled labor shortages also make in-house alternatives harder to scale.
Instrumentation and monitoring
As operators look to boost operational performance, instrumentation, monitoring, and analytics providers can play a key role. Whether in new builds or retrofits, solutions that improve efficiency across power, cooling or space are likely to see increasing demand and can benefit from greater recurring revenue streams.
CIL continues to monitor trends and activity in the data center space. If you would like to discuss key developments or strategic opportunities, please get in touch.
Sign up to our mailing list to receive our latest insights.