AI & hyperscale to more than double data centre spend

Spending on data centre networking is rising as operators expand hyperscale capacity and deploy new infrastructure for artificial intelligence and high-performance computing workloads. New estimates from MarketsandMarkets point to strong growth through the end of the decade.

The research group forecasts the data centre networking market at USD $55.64 billion in 2025, rising to USD $139.08 billion by 2031. That implies a compound annual growth rate of 16.5% over the period.

Rising demand for bandwidth and lower latency is driving the shift. Network designs inside large data centres are changing as operators build AI training clusters and expand GPU-dense computing. These deployments increase east-west traffic, where data moves between servers within the same facility.

Upgrades to higher-speed links are becoming central to network refresh plans. Many organisations are modernising architectures with 400G and 800G technologies as they scale cloud environments and manage growing internal traffic.

Hybrid and multi-cloud strategies are also driving investment. Many enterprises now distribute applications and data across multiple environments, increasing the need for consistent performance and tighter control across sites.

Operators face mounting operational pressure as networks become more complex. More devices, links, and traffic patterns make configuration and troubleshooting harder, boosting interest in automation and observability tools.

Software growth

MarketsandMarkets expects network management, automation, and observability to be the fastest-growing software segment. It attributes the outlook to the complexity of high-speed fabrics and the operational demands of large AI deployments.

These platforms typically provide centralised control and real-time monitoring across locations, along with provisioning and configuration management for distributed environments. Continuous telemetry monitoring is also increasingly in demand for large deployments.

AI clusters raise the risk of congestion hotspots and performance variability, particularly as workloads shift between training and inference. Real-time observability and predictive analytics are becoming more critical, with a focus on reducing downtime and detecting congestion early.

Security remains a priority as infrastructure scales. Controls increasingly need to align with automated network operations, especially in multi-cloud settings where policies can diverge between environments.

Hardware demand

Even as software attracts investment, hardware remains the largest revenue source. MarketsandMarkets expects network infrastructure to account for the biggest share of overall spending, driven by continued investment in switching, routing, and offload components.

This segment includes Ethernet and InfiniBand switches, higher-capacity routers, and network interface hardware such as intelligent NICs and data processing units. These components underpin modern data centre designs, handling server-to-server flows and traffic entering and leaving the facility.

The shift to 400G and 800G links increases the cost and scale of physical upgrades. GPU-dense environments can also push operators toward more complex topologies, raising requirements for switching capacity and interconnect performance.

Refresh cycles continue as organisations phase out older 10G and 40G systems. Many data centres still run mixed environments, with legacy networks supporting established workloads and newer fabrics supporting AI and cloud-native platforms.

Regional outlook

MarketsandMarkets expects North America to hold the largest share of the market. The region has a strong concentration of hyperscale cloud providers and large-scale data centres, along with established fibre connectivity and high levels of capital expenditure by major technology companies.

It also hosts a growing number of AI training facilities, supporting demand for higher-speed switching and network interface hardware as internal fabrics scale.

Asia Pacific is projected to be the fastest-growing region during the forecast period. MarketsandMarkets points to rapid digital transformation, rising cloud adoption, and government-backed data localisation initiatives as key factors shaping investment.

China, India, Japan, and several South East Asian markets are seeing significant investment in AI infrastructure and new data centre campuses. Expanding hyperscale capacity and sovereign cloud projects are also supporting demand for high-speed networking equipment and management software.

"The data center networking market is primarily driven by rapid hyperscale expansion, AI and HPC workload growth, and increasing demand for high-bandwidth, low-latency connectivity," according to MarketsandMarkets Research.