Data Center Evolution: Unlocking the Next Era of Compute

The demand for data centers has skyrocketed in the past two years as companies race to build out infrastructure for Generative AI workloads. With no end in sight for demand growth, investors are already running into sobering constraints on the supply side, including data center capacity, the finite availability of energy, and the limits of manufacturers and supply chains to produce the hardware.

GLG recently hosted three experts in the space to discuss how the industry can keep up with the steep demand trajectory given growing challenges, including through alternative energy sources and scalable innovations. 

The Experts:  

• Mark Monroe, Former Principal Research Engineer for Data Center Advanced Development at Microsoft.  

• Monika Murugesan, Former Global Vice President of Product Management and Strategy at Schneider Electric.  

• Barry Smith, Former Director of Market Development at Equinix.  

The Key Takeaways:  

Sustainability of demand:  

•  All three experts agreed that investment in data centers will keep growing for the foreseeable future despite concerns about public pullbacks and new efficiencies in large language models and chips. They noted that any pauses or delays in projects may rightsize data center portfolios. But, as the industry shifts from training to inference workloads, demand will continue growing with builders trying to keep pace.   

Alternative energy sources:  

• While the experts all endorsed the industry’s focus on renewable energy, they offered differing perspectives on the efficacy of microgrids and hydrogen as near-term solutions. Natural gas is likely the most reliable solution to fill gaps in power generation, they said, as the industry explores potential longer-term solutions like nuclear.  

Industry partnerships:  

• Industry partnerships between power providers, data center builders, and local utilities will be critical to powering data centers in the foreseeable future. Moving forward, partnerships may focus more on power colocation, but the current use cases or number of partnerships or current efficacy remains limited.   

Markets to watch:  

• Georgia, Texas, and Nevada are some of the markets where the experts expect to see investment and expansion of new data centers. Atlanta could become a viable Tier-1 data center market, they suggested, given the availability of land and power.  

What’s next:  

• Barry is following the evolution of investment theses around data centers, with a particular focus on data centers as asset backed securities.  

• Monika is keeping an eye on the Data Center Infrastructure Management (DCIM) space, noting a significant rise in companies specifically focused on innovations in DCIM software.  

• Mark is monitoring the industry’s supply/demand equation, particularly the capacity for equipment manufacturers to keep up with expected demand for hardware components.