Driving Electrical Industry Growth – Strong Start in 2026 for Data Centers

• Data centers are set to drive $650-$900 billion in 2026 CAPEX, making them one of the strongest growth engines in nonresidential construction and distribution.
• The opportunity spans the full ecosystem—from upstream IT components to midstream REIT and hyperscale infrastructure to downstream construction support—creating multiple ways for distributors to win.
• The biggest advantage is service execution: distributors that can source, kit, stage, and deliver critical products fast are best positioned to capture share as data center demand accelerates.

Data centers have become one of the biggest demand engines in electrical distribution, pulling through massive volumes of power gear, cable, conduit, busway, PDUs, UPS systems, and related infrastructure. As hyperscalers, REITs, and contractors expand capacity, the electrical channel is increasingly at the center of projects where speed, availability, and execution matter as much as price.

The data center rise continues largely unabated. The trends highlighted in the November 2025 article Data Centers Lead the Way, are holding, and even accelerating. For many quarters, data centers have been the driver of the electronics industry and nonresidential construction. Taking that analysis a step further, we will explore the subtleties of the data center ecosystem and how distributors can serve the different elements of that ecosystem.

Datacenters are expected to drive between $650 and $900 billion of CAPEX in 2026 alone. As the infrastructure continues to scale, there is a supporting ecosystem – from the upstream suppliers of chips, servers and IT infrastructure, to the midstream REITs who own, develop, operate and lease colocation facilities to the hyperscalers who are the massive cloud providers that design, build, own and operate the massive facilities that deliver cloud and AI services at scale to the downstream companies that build the data centers – and each element of that ecosystem gives a different perspective of the dynamics driving the growth.

Earnings results for the first fiscal quarter of 2026 reinforce the view that strong data center growth will continue – as backlog, the CAPEX commitments and investments accelerate to meet demand. The table clearly shows the size, growth, and investments by each layer of the data center ecosystem.

There are substantial opportunities at each layer of the ecosystem, however, there are pitfalls to be aware of, and mitigate.

Upstream infrastructure

Beyond the typical MRO opportunities to service existing facilities and offices, this layer of companies is rapidly building out capacity and nearshoring manufacturing of core IT components such as semiconductors, chips, and servers. It is expected that there will be a near $2.5 trillion spend in data center infrastructure and IT components alone. (Gartner and Dell’Oro Group estimates).

Electronics distributors act as critical supply chain intermediaries, sourcing, stocking, and delivering semiconductors, passive components, connectors, PCBs, power supplies, storage systems, and cabling to the server and semiconductor manufacturers like Dell, HPE, AMD, Intel, and Broadcom for data center builds. Beyond the core electronics distributors like Rexel, Grainger, Grabar, Sonepar and others, there are specialized distributors that capture volume leverage from explosive the upstream demand such as Arrow Electronics, Avnet, TTI, Future Electronics, DigiKey, Fusion Worldwide, ASBIS and others who are growing in the 15-25% range.

Electronics distributors selling into data center midstream REITs like Equinix and Digital Realty provide passive components, cabling, connectors, trays and conduits, power distribution units (PDUs), UPS, and rack power (from manufacturers such as Eaton, Vertiv and Schneider) and networking gear for facility infrastructure upgrades and tenant fit-outs. These products are the primary category for REIT CAPEX and in addition to new builds, there is also a facility maintenance play.

REITs drive steady, recurring demand for non-IT infrastructure products. Distributors such as Graybar, Anixter/Wesco dominate the electrical and cabling space, while specialty distributors like Arrow, Avnet and TTI sell specialized HVAC controls, relays and sensors and support automation upgrades.

Just-in-time kitting/vendor-managed inventory critical for REITs’ tight tenant handover schedules and typically have higher service margins than commodity OEM flows

For REITs, there is also a hyperscale tie-in as they lease their facilities to the hyperscalers and build to their specs. It is estimated the REIT distributors capture about $10-20B annual infrastructure tail.

Midstream hyperscalers

Electronics distributors selling into midstream hyperscalers such as AWS, Azure, Google Cloud, Meta, capture high-volume, mission-critical component flows that support their massive self-built capacity expansions, earning steady 3-8% margins on just-in-time fulfillment. The biggest IT items are

• Servers: High-value and high-visibility but often purchased through OEM channels like Dell and HPE rather than traditional distribution.

• Storage and memory: SSDs, DRAM, high bandwidth memory (HBM), and server memory modules are important, especially for AI builds, but many of these are sourced through OEMs or specialized channels.
• Networking gear: Switches, routers, NICs, and optical components are significant, especially for hyperscale builds and interconnect-heavy designs.

Hyperscalers and their $630-$900B CAPEX fuels component orders resulting in a $100 to $200 billion addressable server-heavy market for the following top distributors, the key products sold and their part in the ecosystem:

Electronics distributors face intense operational and margin pressures when supplying hyperscalers due to their massive scale, rapid deployment cycles, and direct leverage over the supply chain.

Key challenges distributors face in this segment of the data center market include:

• Margin erosion: Hyperscalers demand volume pricing, often driving down margins from the industry 5-8% levels to <3%, forcing distributors to negotiate deeper vendor rebates or accept razor-thin spreads amid HBM/DRAM “memflation” (+10-12% prices).
• Lead time volatility: 20-24+ week semiconductor delays exceed hyperscalers forecasting windows; inaccurate demand signals (ramping then canceling GW-scale orders) disrupt inventory turns.
• Allocation competition: Hyperscalers get supplier priority, forcing manufacturers like TSMC and Samsung to divert capacity, leaving distributors scrambling for Arrow/Avnet allotments while serving smaller OEMs.
• Customization complexity: Regional variants (CPR compliance, power specs) and rapid innovation require engineering support distributors struggle to scale globally.
• Disintermediation risk: Hyperscalers push direct marketplace procurement (AWS/Azure), bypassing distributors for standardized components while channel partners defend custom kitting value.

The top distributors counter hyperscalers leverage VMI/kitting contracts to in allocation priority, building regional hubs that mirror hyperscalers footprints for 24-48hr delivery and technology investments including AI forecasting and blockchain traceability to combat volatility.

Downstream

The play for downstream contractors is attractive, and large. The November article in HVACR Trends, Data Centers – an HVACR Distributor Opportunity – HVACR Trends, estimates that 55% to 60% of U.S. data center market revenue flows through distribution channels.

Electronics and electrical distributors sit in the middle of the build cycle, supplying the parts builders need fast: cabling, power gear, PDUs, connectors, controls, HVAC-related electricals, and sometimes server-adjacent components. Data center projects are compressed, specification-heavy, and expensive to delay, so distributors who can warehouse, kit, and deliver on schedule can win meaningful share

The usual players are a mix of large electrical distributors, broadline industrial distributors, and specialized data center infrastructure suppliers. Common names include Wesco, Graybar, Arrow, Avnet, TTI, plus niche specialists such as Nassau National Cable and other cabling/power-focused distributors.

The best distributor play is usually service and fulfillment leverage, not pure product margin. Winners tend to have regional warehouses, jobsite delivery, vendor-managed inventory, technical application support, and the ability to handle bulky or urgent project materials at scale.

For downstream builders like EMCOR, MasTec, Sterling, DPR, Turner, and other specialty contractors, distributors are often the procurement and logistics layer that makes the job site work. Builders care less about the “brand” of the distributor and more about availability, kitting, lead times, and error-free delivery to tight and often aggressive construction schedules.

Traditional electronics distributors sell the most into infrastructure-heavy, high-velocity products rather than the “brains” of the data center. The biggest volume items are usually power, cabling, racks, cooling, and network interconnect components; servers and memory are also large, but more often flow through OEM and direct channels than pure distribution.

With a large backlog and demand soaring, data centers will continue to lead the way in nonresidential construction to the foreseeable future. Taking advantage of these opportunities become critical for distributors.

Click here to acquire the original 25-page data center research report at a discounted rate of $59.