The AI revolution is driving demand for massive computing power and creating a data center shortage, with data center operators planning to build more facilities. But it’s time for data centers and other organizations with large compute needs to consider hardware replacement as another option, some experts say.

Data centers are running at near capacity in many areas of the world, according to the Global Data Center Trends 2024 report from CBRE, a real estate services firm. Singapore’s data centers have a 1% vacancy rate, and data center availability in the huge northern Virgina data center hub stands at 0.9%, despite an 18% increase in capacity between early 2023 and early 2024, according to the report.

The 2023 CBRE report found that 83% of the data center capacity under construction at the time was presold.

While there’s more than 10% of capacity available in Europe, Latin America, and the greater Asia Pacific region in 2024, the growth of AI, cloud computing providers, and other power-hungry applications requires a new approach to data center operations, the report says. “High-performance computing will require rapid innovation in data center design and technology to manage rising power density needs,” it adds.

A current data center building boom isn’t likely to stop soon, with credit rating firm Moody’s, in a July 15 report, projecting that global capacity will double in the next five years. But with finding space for new data centers becoming increasingly difficult, some experts say it’s a good time for data center operators, cloud computing providers, and companies running AI and other major workloads in house to think about replacing old hardware instead.

Efficiency is money

Modern CPUs not only offer more computing power, but they also are more power efficient than older models and generally take up much less data center space, some advocates say. Using new CPUs, data centers can consolidate servers running tens of thousands of cores into less than 50 cores, says Robert Hormuth, corporate vice president of architecture and strategy in the Data Center Solutions Group at AMD.

An estimated 100 million 5-year-old servers are still in operation, partly because the COVID-19 pandemic stalled some planned upgrades, Hormuth says. About 21 million new servers could replace those old machines, leaving data centers and in-house server rooms more space to add computing power.

With power efficiency gains and other savings, a large-scale hardware replacement could give data center operators and other hardware-dependent organizations a return on investment in as little as two months, Hormuth claims. Meanwhile, building a new data center can cost hundreds of millions of dollars.

Power efficiency gains of new hardware can also give data centers and other organizations a power surplus to run AI workloads, Hormuth argues.

“That’s the race that seems to be going on in enterprises: ‘How do I go make room and power to do AI?’” he adds. “That pressure is just really driving the enterprise customers, whether it be in a co-lo or create their own, to get those capabilities.”

Big upgrades ahead

While AMD has a dog in this hardware-replacement fight, several other IT experts also say it’s a good time to replace servers and other hardware. Many data center operators appear to be thinking the same way, with Gartner projecting a 24.1% data center spending increase, covering servers, external storage, and network equipment, in 2024. Data center spending, which doesn’t include new buildings in Gartner’s calculations, saw just 4% growth in 2023, Gartner says.

Jim Warman, vice president of infrastructure architects and engineers at Myriad360, a data center and cybersecurity consulting firm, sees the same trend. Many hardware users are prioritizing replacement.

“Businesses are recognizing the advantages of modernizing their infrastructure to support new applications and services, reduce costs, and maintain competitiveness,” he adds. “The emphasis is on utilizing the latest technology to drive business growth and operational efficiency.”

With data centers near capacity in the US, there’s a critical need for organizations to consider hardware upgrades, he adds. The shortage is exacerbated because AI and machine learning workloads will require modern hardware.

“Modern hardware provides enhanced performance, reliability, and security features, crucial for maintaining a competitive edge and ensuring data integrity,” Warman says. “High-performance hardware can support more workloads in less space, addressing the capacity constraints faced by many data centers.”

The demands of AI make for a compelling reason to consider hardware upgrades, adds Rob Clark, president and CTO at AI tool provider Seekr. Organizations considering new hardware should pull the trigger based on factors beyond space considerations, such as price and performance, new features, and the age of existing hardware, he says.

Older GPUs are a prime target for replacement in the AI era, as memory per card and performance per chip increases, Clark adds. “It is more efficient to have fewer, larger cards processing AI workloads,” he says.

While AI is driving the demand for data center expansion and hardware upgrades, it can also be part of the solution, says Timothy Bates, a professor in the University of Michigan College of Innovation and Technology. Data center operators can use AI to monitor efficiency, he says.

“By using AI tools to predict and manage hardware degradation — such as PCIe cards, SSDs, and memory components — businesses can replace individual components rather than entire systems, optimizing costs and extending the lifespan of existing infrastructure,” Bates says. “This approach, combined with strategic hardware upgrades, can maximize the efficiency and performance of data centers.”

In the age of digital innovation and work-from-anywhere, every company has a lengthening list of cloud services and applications compounding complexity for their IT team. Consider today’s trends that make cloud resources more prolific — sometimes without any regard for cost or risk to the company:

The advantages of cloud scalability and management off-loading have more companies leaning into cloud Infrastructure as a Service (IaaS) with most managing multiple clouds. TechRepublic reports 82% of IT leaders are adopting the hybrid cloud, half of which are deploying 2-3 public clouds.Security over the past 10 years has been about adding point Software as a Service (SaaS) solutions in a whack-a-mole response to new cybersecurity threats. Not to mention Zero Trust strategies calling for more technologies in the name of identity-based security with multi-layered protections.The pandemic triggered accelerated SaaS adoption, particularly in the areas of collaboration and unified communications, so companies could simply survive in the rush to remote work.

With digital innovation run amok over the past few years, many IT leaders are finding themselves in a governance phase according to the CIO.com State of the CIO Study. That means executives are trying to understand what cloud resources they have, how to manage them efficiently and cost-effectively, and — better still — how to secure them. There is a strong need for cloud governance.

But herein lies the core problem.

Cloud governance distracts executives from leveraging the cloud for what it is – an innovation incubator. “CIOs need to shift their focus from the micro to the macro. That is, they need to spend less time managing every cloud application and service operated by IT, so they can drive strategic innovation,” said Johnna Till Johnson, CEO, Nemertes.

Cloud technologies that reduce cloud complexity

IT environments have been expanding at such a rapid pace that IT resources have scarcely kept up. This has knocked the IT team sharply out of balance with the cloud assets for which it is held responsible. Like staring at the vast horizons of the Grand Canyon, IT teams often feel overcome by the endlessness of their management duties.

In response, most IT leaders are quick to hire more staff to help level the balances; however, that response is only half of the solution equation. Simultaneously, leaders must take back control of their clouds by – you guessed it – using more cloud technology. That’s right, your IT environment has become so complex, you need another cloud technology to manage all your cloud technologies.  In fact, a recent study finds that budgets allocated specifically to cloud resources are expected to increase by 12% over the next two years.

But before you shake your frustrated fist in the air, the beauty of adding a cloud expense management (CEM) platform is the tangible and immediate cost savings that can make for an easy approval conversation.

Reality hits at CEM implementation. While the AI-powered software typically takes a matter of hours to come back with insightful recommendations, finding the right people with the permissions and authority to connect the CEM software to your cloud data — that is typically the hardest part. But ask companies already using CEM alongside similar mobile device management and telecom management platforms, and they will tell you CEM investments deliver even more cost savings in comparison.

So, what does a CEM platform do and where does that value come from?   

Controlling cloud resources, costs, and security too

Some of the most used features of a CEM platform are inventory visibility, usage data, and expense tracking, which together help companies eliminate cloud overspending. On average, the anticipated use is not equivalent to actual use, which generates hard dollar savings whether it’s unused application licenses or excess data center storage. CEM technologies are good at answering questions like:

How much can I save by pausing my cloud services or consolidating my applications?Which department or cost center is using the most cloud resources?How is data functioning and flowing across our company infrastructure?How can I get a report of vendors and contractors accessing our company information?How many of my app licenses really need to be upgraded?

Moreover, CEM provides a data-driven strategy showing where to start with any optimization efforts. Solutions are also known for having the latest pricing information with databases updated daily – if not more frequently.

In addition to savings, these insights are key for security. After all, you can’t secure what you can’t see. The list of SaaS applications are stack-ranked by both usage and security risk, supporting shadow IT discovery and cloud security initiatives. Other key features include:

Comprehensive cloud services addressing both IaaS and SaaS, including UCaaSThe ability to evaluate and optimize both public and private cloud infrastructure servicesThe number of customizable reports and flexible processes for building workflowsProfessional services in addition to basic services 

Beyond data readouts, clients and their IT teams may still need help, and solutions vary in their abilities to make data actionable. From bill pay and employee on- and offboarding to contract renewals and integrations after mergers and acquisitions, clients will want to think about what management tasks they intend to outsource versus keep and ask questions accordingly.

Empowering CIOs and CTOs to innovate again

IT budgets have been hit hard by cloud costs, and resource management has only become more complicated. Financial officers and technology leaders bear the burden of finding more efficient ways to reign in and right-size their expanding assets. When they rebalance innovation with operational excellence, not only do they make IT budgets more recession-ready, but they also let their partners calm the chaos. That lets them get back to using cloud technology for what it was intended for – digital transformation. Investing in cloud cost optimization is the first step in clearing the haze off the corporate cloud landscape, so leaders can get back to the sunnier days of innovation.

To learn more about cloud cost optimization, visit us here.

Cloud Management, Cloud Security