WSS: Constantly evolving demand profile for data centre colocation still moving in the right direction for sector
Another busy week brings us to the halfway point of the year and it has been an eventful six months, with CoreWeave going public and the neclouds continuing to gain ground and altering the overall demand profile for hyperscale data centre colocation. We have discussed how this has helped bring us to the ‘end of hyperscale‘ and that looks to be a positive development for the sector.
The first half of the year also saw the rise of bearish sentiment and talk of a bubble or overbuild situation developing as interest in the sector has reached unprecedented levels. The unfortunate emergence of the ‘fake data centre‘ is a byproduct of this environment and has fuelled these concerns. And this sentiment was exacerbated by the work coming out of China around the DeepSeek training model and then the discussion around hyperscalers pulling back (and/or trying to pull back) from infrastructure resource commitments and leases. There was a large volume of hyperventilation (pun intended) that could fairly be described as a collective freak-out, at least when it came to the investment community. That is not to discount the importance and significance of these developments. There was a pullback (up to 2GW for Microsoft it was reported) and real leases that translate into revenue did not happen. But the reality is that the sector is not on the verge of some existential crisis. The pullbacks were part of capacity management and optimization that is inevitably going to involve larger quantities (and by extension, dollars) this day and age. Hyperscalers are no longer opting out on data halls. It is now about entire campuses and sites. The numbers are bigger and the stakes are higher, and a shift or change of course here and there is going to be felt.
Some of the bears are trying to draw parallels with the dotcom bubble in the early 2000s, but the more fitting comparison is the global hyperscale cloud build-out that began towards the end of the 2000s into the 2010s. There was plenty of chatter then that multi-MW data centres for a single public cloud tenant (or a small handful of them) was an unrealistic proposition. And that of course, was completely unfounded. it is fair to think that the sector is at a similar type of crossroads, with infrastructure set to reach another level to serve what is coming. A lot of what is coming is still on the drawing table, and may take some time, but it does not mean that it is unrealistic and not going to happen. Technology will continue to develop and it is going to need infrastructure. The numbers are going to be bigger than ever before and that is the inevitable directional trajectory of infrastructure. It is only about how fast it will take to get there.
There are plenty of other reasons to be optimistic about the sector’s forward trajectory. We have talked about cloud repatriation and this week take a closer look at an interesting use case that has played out over the last few years. 37Signals has moved off the AWS cloud entirely. The move does not reflect a larger trend of organizations moving off the public cloud. But it is a sign of how organizations are looking closely at how they use the cloud and finding ways to be more efficient. With respect to overall demand and growth of the sector, the migrations off cloud will easily be offset and there will not be any significant headwinds. The main offset is organizations moving to cloud and interconnection-oriented colocation environments to take advantage of AI tools and services.
Back to the neoclouds, they continue to drive demand for colocation. Together AI is working with 5C Data Centers to build out infrastructure in Europe. 5C Data Centers has merged with Hypertec Cloud, bringing in hardware and cloud infrastructure delivery capabilities. The partnership with Together AI is about helping them with the full infrastructure stack, including everything from data centres to GPUs and servers. Cloud infrastructure can serve as bridge capacity or a steady delivery vehicle. This should become increasingly common as AI companies focus on software and management tools, not just GPU infrastructure delivery.
The past week also saw us publish our monthly insights, which again provide evidence of a steady pace of infrastructure building, despite developing uncertainty and the bearish sentiment and worries that have emerged in the investment community. AWS is investing heavily on a global basis and shows no signs of slowing down, while Oracle Cloud has raised its guidance and is anticipating cloud infrastructure growth acceleration. If anything, the past week and months showed that there are just as many reasons to be optimistic and bullish than than there are to be bearish. The sector remains remarkably resilient even as we move into a phase of uncertainty around geopolitics, global trade issues and the threat of macroeconomic unsteadiness.
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