AI Hardware Market to Surge 40% Annually, Driven by Cloud Demand

AI hardware suppliers are experiencing a new wave of prosperity as the demand for AI data center equipment continues to surge. According to a report released on September 9, the market outlook for AI data center equipment has been significantly updated, driven by the robust demand from both hyperscale cloud providers and second-tier cloud service providers. This demand is expected to result in a steep growth curve for the AI hardware market.

The most striking figure in the report is the revised forecast for the AI server market. According to the latest predictions from 650 Group, the global AI server market is expected to reach approximately 5810 billion dollars by 2029, up from the previous estimate of 3860 billion dollars. This represents an average annual increase of about 40% from 2025 to 2029. The report also predicts that the AI server market will expand at a compound annual growth rate (CAGR) of 38% from 2024 to 2029.

Similarly, the AI data center switch market is also expected to grow, with a projected market size of approximately 260 billion dollars by 2029 and a five-year CAGR of 36%. In contrast, the traditional server market is expected to continue shrinking at a CAGR of -2% from 2024 to 2029, indicating a significant structural shift in data center capital expenditures.

The report attributes this aggressive upward revision to the strong demand from not only major cloud providers like Amazon and Microsoft but also from second-tier cloud service providers and telecommunications operators. These second-tier providers are becoming a significant driving force in the AI hardware market. According to 650 Group's data, the AI server market for second-tier cloud service providers is expected to grow at an astonishing 66% CAGR over five years, while the enterprise market is expected to grow at a 36% CAGR.

The surge in demand has also led to intense market competition and a reshuffling of market shares. According to the report's data for the second quarter of 2025, Dell has emerged as a standout performer. In the fastest-growing segment of second-tier cloud and service providers, Dell's market share increased by 22 percentage points to 46%, capturing nearly half of the market. Meanwhile, the market share of previously strong performer Super Micro Computer decreased by 7 percentage points to 29%. Nvidia and white-label manufacturers also saw their market shares decrease by 5 and 15 percentage points, respectively.

In the enterprise market, Dell also performed well, with its market share increasing by 13 percentage points to 30%, tying with HPE. These data points clearly indicate that Dell, with its strong supply chain and customer relationships, is rapidly establishing its leadership position in the AI server market, particularly among non-hyperscale customers. The report maintains a "buy" rating for Dell, citing its diversified product portfolio as a key factor in benefiting from the demand for AI servers. Conversely, Super Micro Computer received a "sell" rating due to the increasing commoditization and intense competition in the AI server market, which could ultimately squeeze its profitability.

The growth of AI servers is also driving the expansion of the entire data center ecosystem. The report predicts that the AI data center switch market will grow at a 36% CAGR over five years, reaching approximately 260 billion dollars by 2029. On a broader scale, cloud providers' capital expenditures are accelerating. According to 650 Group's predictions, by 2029, capital expenditures on cloud data center equipment will reach 8500 billion dollars, with a CAGR of 24% from 2024 to 2029. This aligns closely with the overall 23% CAGR in capital expenditures for cloud providers during the same period.

Overall, the report paints a clear picture of the industry: AI-driven data center infrastructure construction is on a long-term, high-speed growth trajectory. This presents a massive growth opportunity for hardware suppliers who can seize the moment, but it also intensifies industry competition, testing the competitive strength of every participant.