Cloud Companies Increase Capital Spending in Data Center



Data center market

Micron Technology’s (MU) biggest growth opportunity in the data economy lies in the cloud data center market. Everything from mobile to PC to car to smart devices would be connected to the cloud and send the data they collected to the cloud.

This would add to huge pools of data, increasing the need for NAND (negative AND) storage. Moreover, there is a need to process these huge data sets to help edge devices perform with more accuracy, which is increasing the need for DRAM (dynamic random access memory).

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Cloud companies invest in data center

As a result of this trend, cloud companies are investing capital in infrastructure. Their capital spending is expected to increase from $41.0 billion in 2017 to more than $108.0 billion by 2021. This growing capital spending saw all semiconductor companies associated with servers report strong growth from the data center market.

Over the past few quarters, Intel (INTC) has been reporting double-digit YoY (year-over-year) growth from the data center group. Broadcom (AVGO) also witnessed strong growth from enterprise storage.

Cloud companies invest in AI capabilities

Speaking of capital spending by cloud companies, they are not only expanding their memory and storage space, but they are also making their servers capable of handling AI workloads.

At the 2018 Investor Day, Micron’s CEO, Sanjay Mehrotra, stated that the cloud started to invest in AI in 2017. He expects the mix of AI servers to total server shipments to increase to ~10% in 2021 and ~50% by 2025.

Memory opportunity in data center

The data center market presents two types of opportunities for the memory market. First is the growing shift of servers to the cloud. Second is the increasing AI capability of these servers. We’ll look into these opportunities in the next part of the series.

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