As we enter the new year, it’s a great opportunity to reflect on 2023 and assess what’s in store for 2024.
Looking back at our 2023 DCPI predictions, we anticipated that macroeconomic uncertainty would not lead to a DCPI recession in 2023. We also foresaw that power availability would challenge data centers to rethink energy storage and on-site power generation. Both proved to be true.
Through 3Q23, DCPI revenues have grown at double-digit rates, surpassing our expectation for 2023. Power availability also became a widespread topic of conversation, with battery energy storage systems (BESS), fuel cells, and small modular reactors (SMRs) all increasingly viewed as options to address future power availability challenges.
We also predicted a 10MW immersion cooling deployment from a top cloud service provider; however, this did not happen. Smaller scale deployments and proof of concepts occurred, but larger scale deployments require continued growth in ecosystem support, new environmentally friendly immersion fluids, and increased end-user operational readiness.
Yet, the most impactful and exciting development of 2023 in the data center industry should come as no surprise at this point, the proliferation of generative AI. This has set the stage for a profound transformation in the DCPI market. The impact will be felt for years to come, and we expect to see the following three trends this year:
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Normalizing order cycle to lead to slow start for DCPI market in 2024
After back-to-back years of double-digit growth, which has not been the norm over the past decade, DCPI revenue growth is forecast to moderate in 2024, pronounced in the first half of the year. This moderation is attributed to supply chain constraints that delayed unit shipments in 2022, creating unseasonably strong growth in the first half of 2023. Not only does this create tough year-over-year comparisons for 1H24, but abated supply chain constraints mean end-users’ ordering patterns are normalizing, shifting towards the second half of the year.
Additionally, while DCPI vendor backlogs haven’t meaningfully declined, the contents of those backlogs have changed. Order associated with traditional computing workloads have returned to more normal levels, while backlogs for AI-related DCPI deployments are growing. However, these AI-related DCPI deployments need additional time to materialize.
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Purpose-built AI facilities will begin to materialize in 2H24
After a slow first half of the year, growth is forecast to accelerate during the second half of 2024. We anticipate that this growth will be driven by new facilities purpose-built for AI workloads, starting to materialize from the top cloud service providers. These facilities are expected to demand 100s of MWs each, pushing rack power densities from 10 – 15 kW/rack today to 80 – 100 kW/rack to support power hungry accelerated servers.
This requires significant investments in higher ampacity power distribution and thermal management, specifically liquid cooling. We expect the majority of this liquid cooling to materialize in the form of Direct Liquid Cooling and air-assisted Rear Door Heat Exchangers (RDHx). This is due to the familiarity of end-users deploying IT infrastructure in the vertical rack form factor and existing ecosystem support, alongside the performance and sustainability benefits. We plan to provide more detail on liquid cooling in our upcoming Advanced Research Report, ‘Data Center Liquid Cooling,’ scheduled to publish in 2Q24.
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Changes in GHG Protocol accounting will add pressure to data center sustainability
The data center industry is on a rapid growth trajectory, a trend further accelerated by the growth of AI workloads. However, this surge has raised concern about a potential for alarming growth in greenhouse gas (GHG) emissions. This has attracted attention to the data center industry, to which the industry has responded with commitments to grow sustainably.
To help measure and assess progress here, many within the data center ecosystem report on carbon emissions following the GHG Protocol Corporate Accounting and Reporting Standard. GHG Protocol recently began working on updates to the standards that may significantly impact data center Scope 2 emissions, or indirect emissions generated from the purchase of electricity. Historically, data center owners and operators have been able to limit these emissions through power purchase agreements (PPAs) and renewable energy certificates (RECs) offsets. However, these offsets no longer have the shiny appeal they once did. That’s because the burden a data center has on its local power grid and community may not align with the benefits from the offsets.
We expect the updates from GHG Protocol to address this issue, and become introduce more granularity and stringency in Scope 2 emissions accounting. This may make sustainability claims related to Scope 2 emissions more difficult to make, but much more meaningful. A draft version of these updates is expected in 2024, with the final standards slated for release in 2025. These changes will set the stage for the sustainability claims the data center industry can make in the second half of this decade.
