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The inexorable move to digitalisation, driven by technological breakthroughs like artificial intelligence and cloud computing, is propelling investment in the physical infrastructure needed to process and store all the newly created data.
As a valuable input to many modern business models, data has become the fuel of the 21st century. While many forms of data appear disembodied in cyberspace, the reality is that all this data needs to be stored somewhere physically, and that somewhere is generally in data centres.
The rapidly developing technologies critical to all aspects of society and the economy, like artificial intelligence, 5th generation wireless technology, the internet of things, and cloud computing, require a sophisticated network of these data centres. But demand for new data centres is expected to outstrip supply for the foreseeable future. So we expect companies that supply electrical and IT equipment for these facilities to benefit from this growth.
Data centres are the physical buildings that house the IT equipment that processes, stores, and disseminates vast amounts of data. They are crucial components of the digital world, supporting services that we now take for granted. Every time we shop online, stream a film, engage in social media, or use cloud services to store our files, we use data centres.
Catering to a wide variety of customers, data centres come in many sizes. The largest are hyperscale data centres, primarily used to support cloud applications. These are operated by cloud service providers (CSPs) with household names such as Amazon, Google, and Microsoft. The buildings involved are typically more than 10,000 square feet in size, and contain thousands of servers.
Co-location or multi-tenant data centres operate a bit differently. Here the data centre owner will sell space, power, and cooling to multiple customers at a specific location. These co-location providers don't necessarily own the servers and network infrastructure, which may belong to the customer. Enterprise and mini-data centres often support just one company, through either on-site or off-site servers.
Unsurprisingly, the USA dominates the global data centre market, with more than 40 % of these facilities located in North America. The European market, accounting for about 30 % of the global market, is fragmented, and clustered largely around the financial centres in London, Frankfurt, Amsterdam, Paris, and Dublin. However, the combination of limited space, high urban land costs, and restricted availability of power in existing hotspots, makes future expansion challenging in these locations.
According to IDC, a technology consultancy, global data is expected to increase at a compound annual growth rate of 27 % between 2023 and 2027. As a result, the data centre market is predicted to expand at double-digit rates in the next few years. Even so, it's anticipated that the pace of data centre supply coming onto the market will lag behind demand. A key bottleneck is the high and growing power consumption of data centres, and the difficulty of finding new locations with sufficient access to power.
It is no small irony that the high structural demand for more data centres is already putting additional strain on the global electrical grid, as these centres are significant consumers of power. This comes on top of the electrification trend driven by global decarbonisation efforts. LGT, through its affiliate Lightrock, has invested in a US growth-stage company called Liqid which aims to reduce data centres' energy and water consumption by making their hardware more efficient.
Today, data centres account for only 2 % to 3 % of global electricity demand, but this share is expected to increase significantly in future. In the USA, data centres are projected to account for more than 8 % of total US electricity demand by 2030; in Ireland, where many hyperscalers have their European headquarters, data centre power consumption rose from 5 % in 2015 to 21 % in 2023.
Data centre electricity demand is steered by two main processes: computing and cooling. Data centres house thousands of servers, storage devices, and networking equipment, all of which is densely packed into racks. This equipment consumes a lot of power and generates enormous amount of heat.
The spread of AI is an additional growth driver for power demand
To keep temperatures optimal and prevent overheating, data centres require extensive cooling systems. In addition, many need to operate all day, every day, so they hold duplicate systems to ensure uninterrupted service.
The spread of AI is an additional growth driver for data centres and power demand. While traditional servers rely heavily on central processing units (CPUs), AI servers consist of clusters of graphic processing units (GPUs). These processors considerably accelerate the computing power and training of AI models. The catch: modern data centres with increasing AI functionality require more power and new cooling technologies due to the higher energy density of GPU-accelerated servers.
As a result, we expect data centre growth to benefit companies that supply the infrastructure for power distribution and cooling within these facilities, as well as semiconductor companies that provide critical components for the IT infrastructure.
Based in Colorado, Liqid wants to help data centres curb their insatiable need for power and water.
In a world where decarbonisation is a critical ambition, data centres present a growing problem. Yes, they are the engines that drive the digital world. But they are also huge users of electricity and water for both their computing and cooling needs.
It's here that Liqid wants to intervene. The company aims to improve the sustainability of data centres using scalable software solutions that make the hardware more efficient and improve outputs. It does this through its software: Liqid virtualises the connections between GPUs to combine their output capacity, creating a virtual server that is more dynamic than the current traditional setup.
This technology ensures that any data centre can handle very high demand. It means that infrastructure is under-utilised - except at peak levels - and can be used more efficiently. Not only does this prolong its lifespan, but it reduces the need for additional hardware, further decreasing the electricity and water usage needed to run it. Liqid therefore cuts down e-waste and gives data centres the flexibility to scale up when required.
Liqid is supported by Lightrock, a global investment platform that is committed to building a sustainable future and backed by LGT. Since 2009, Lightrock has been investing in sustainable and fast-growing companies in Africa, Europe, India and Latin America that make a measurable contribution to systemic change.
