AI Investments Not Enough to Offset Hyperscale Digestion Cycle, Cloud Capex Down 2 Percent in 2Q 2023, According to Dell’Oro Group

According to a recently published report by Dell’Oro Group, the trusted source for market information about the telecommunications, security, networks, and data center industries, hyperscale cloud capex declined 2 percent in 2Q 2023, as some of the cloud service providers undergo a digestion cycle. However, Microsoft and Google will remain in a capex expansion cycle with double-digit growth in 2023 from both greenfield investments and refresh.

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“Despite recent heightened investments towards AI infrastructure, hyperscale cloud capex has been decelerating as some of the major cloud service providers are overdue for a capex digestion cycle and have been optimizing their spending on general-purpose infrastructure,” said Baron Fung, Sr. Research Director at Dell’Oro Group. “Meanwhile, enterprise IT spending remains depressed, with revenues for the server and storage OEMs down double-digits year-over-year for two consecutive quarters. We anticipate demand to gradually improve heading into 2024, driven by the introduction of new server platform refresh from Intel and AMD, as well as a shift towards accelerated computing for AI/ML applications,” explained Fung.

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Additional highlights from the 2Q 2023 Data Center IT Capex Quarterly Report:

• Server and storage systems revenue is forecast for 2 percent decline in 2023, while network and physical infrastructure maintains double-digit revenue growth.
• Dell led all OEMs in server revenue in 2Q 2023, followed by HPE and IEI Systems (formerly Inspur). White box server vendors gained 6 points of revenue share Y/Y over OEMs.
• Top 4 US Cloud service providers―Amazon, Google, Meta, and Microsoft―on track to launch services in 25 new regions in 2023, mostly from Microsoft.

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