Datacenter capex forecasts to grow at least 40% in 2025: Citi

Data center capital expenditures are forecasts to increase 40% year over year by the big four cloud companies, which should provide upside to data center interconnect, or DCI, providers, according to Citi Research.

The big four cloud providers are Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG)(NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META). Citi expects these four companies to increase data center spending by 40% to 50% year over year in 2025.

“We estimate that the AI networking opportunity is expanding beyond the server connection within a data center to AI platforms connecting multiple data centers through DCI,” said Citi analysts, led by Atif Malik, in an investor note.

The primary DCI providers expected to benefit include Arista Net (NYSE:ANET), Ciena (NYSE:CIEN), Cisco Systems (NASDAQ:CSCO) and Coherent (NYSE:COHR).

“In fact, as AI clusters sizes are set to reach up to 300K+ GPUs as soon as 2025, containing models in one data center unit will not be sustainable in the long term amid constraints related to power, regulations among others,” Malik said. “With that, hyperscalers are adopting and plan to further expand the adoption of the multi data center training approach.”

Google trained Gemini 1 Ultra using the multiple data center approach, while OpenAI, Microsoft and Anthropic are adopting that model as well, Citi noted.

This DCI spend prompted Citi to project Arista increasing revenue by as much as 25% year over year in 2025. Much of this growth is expected to stem from Ethernet switching in artificial intelligence networks.

Citi increased it price target on Arista to $460 from $385 and maintained its Buy rating.

Meanwhile, Citi maintained its Buy rating and $68 price target on Ciena.

“While we do not believe the company will materially benefit from the early stages of AI investment, we do expect cloud spending to remain healthy and an incremental growth driver,” Citi said.