WSS: Early returns from earnings season reveals more data points that show sector’s fundamentals intact amid worries around hyperscale pullbacks
The past week saw more chatter around the topic of hyperscale pullbacks just as earning season kicked off. The timing could not be better and should put to rest for now any notion that demand for data centre infrastructure reflects a material shift in the underlying fundamentals and growth profile for data centre colocation.
We noted last week how AWS was reported to be pulling back from some global infrastructure commitments. AWS did not take too much time to respond and described the moves as routine capacity management and optimization. NVIDIA also went on the record saying it had not seen any decline in AI data centre development efforts.
The early returns from earnings season provided more evidence. Growth continues to be steady for Google Cloud and it reported a quarterly CapEx number of $17.2b and reiterated its CapEx projection of $75b for 2025. We take a closer look at Google’s results, which also included more discussion about the imbalance between supply and demand. Google, of course, is not the only hyperscaler to see this imbalance. AWS and Microsoft are seeing similar dynamics as they continue to see steady growth and increased CapEx for data centre and server infrastructure – strong indicators that the sector’s fundamentals are intact. We will have more detailed coverage this week, but AWS reported total revenue of $29.3b, up 17% y/y. This was down from the growth seen last quarter, but AWS is still tracking well and left the quarter on an ARR of $117b. CapEx for AWS was in line with what we have been seeing from them and came in at $24.3b and there were no changes in CapEx projections for the rest of the year. Microsoft also reported its results last week, and we will have more details, but it was a similar story. Growth was again healthy, with Azure growing 33% y/y in the quarter (35% y/y on a constant currency basis). CapEx in the quarter for Microsoft was $21.4b, which was below expectations, but caused by the timing and delivery of data centre leases.
Still on the hyperscale side of things, but not in the business of public cloud infrastructure, was Meta and it continues to build and expand its AI infrastructure. Meta incurred CapEx of $13.7b in the quarter and raised its outlook for 2025. CapEx this year is now expected to come in at $64-72b, up from $60-65b. The updated outlook reflects additional data centre infrastructure investments.
Global markets continue to see the groundwork being laid for another wave of emerging market expansion. UAE-based du will build a hyperscale data centre in Dubai for Microsoft, while the AdaniConneX JV is planning multi-billion dollar developments projects across India and Equinix is set to invest $140m to expand in Nigeria.
At the end of every month, we summarize some of the highlights and key themes in a special issue of our regular Analyst Notes distribution. We have more discussion about hyperscale pullbacks and looked at how the innovation that is impacting the landscape is starting to kick in, while noting that demand for GPUs and AI infrastructure remains strong and is overflowing to hyperscale platforms. We also touch on the shifts and emerging lines of separation in the competitive landscape, while talking more in depth about the market inefficiency emerging around edge-hyperscale and inferencing requirements. Finally, geopolitics continues to hang over the sector and we look at how the impact may actually be greater on the operations and procurement side of the game. That is not to say that shifts in the macro environment would not have an impact. They certainly could. But the current instability in trade policy has the chance to throw a wrench and negatively disrupt the increasingly complex and elongated process of building out digital infrastructure.
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