WSS: More growth acceleration from earnings season as neocloud performs well; M&A driving more entries into compute space and self-building expanding
Another busy week saw more reports from earnings season that point to steady and even accelerating growth in certain pockets. The hyperscalers (AWS, Microsoft, Google, Meta) have already reported and while the revenue growth is strong, it is hard to miss how these platforms are continuing to invest. CapEx outlays are expanding and there is a sense of urgency creeping in given where demand levels are and the reality of constraints and the challenges of developing infrastructure in a reasonable time frame. While hyperscale remains the driving force, neoclouds are taking things to another level and the public markets have a bellwether that may end up being more like a hyperscale platform sooner than later. CoreWeave, still a newly minted publicly listed company, reported triple-digit y/y growth again and is on track to reach $5b in ARR by the end of the year. CoreWeave too is facing the reality and challenges of rapid growth, resource constraints and development timelines. CoreWeave had to actually dial down guidance in the past quarter due to delays in data centre infrastructure delivery from one of its third party partners. Revenue was not lost, but there will be delays in the demand coming online and being recognized.
We have looked at the results coming from data centre bellwethers Equinix and Digital Realty, and last week we look at a few of the many cryptocurrency firms (Applied Digital, Core Scientific) that are reporting data centre colocation business lines. There are other data centre colocation earnings reports disclosed through parent companies coming from the likes of American Tower, which owns CoreSite, and Iron Mountain. The results were solid and show healthy growth levels and stable demand profiles.
Cloud infrastructure is dynamic and there is plenty of room in the market for alternatives and they are traded in the public markets. In the last few weeks, we have looked at the results coming from the likes of DigitalOcean, Akamai, Fastly and OVHcloud. In the recent week, we reviewed Cloudflare’s earnings report, which showed the revenue growth acceleration pattern we have seen across the sector. Cloudflare continues to build its business, and like Akamai, is seeing compute infrastructure drive value through its value chain, expanding raw compute and promoting uptake in value-add services.
Akamai and Cloudflare are actually more recent entries into the business of cloud infrastructure, having focused on security and content delivery for the better part of two decades (and longer). Akamai took the strategic path and acquired Linode to push forward in compute while Cloudflare built organically. Megaport is a SDN provider that is making a similar bet that compute will drive adoption of its core services and widen the scope of the value-add layer. It chose M&A and will acquire cloud infrastructure provider Latitude.sh. The plan is to combine connectivity with compute infrastructure to enhance stickiness and increase wallet share within its base. Increasingly, the sector is seeing compute as a foundation and pathway to a unique and differentiated value proposition. Megaport is making that bet.
The sector continues to see large deals to support AI infrastructure development. Anthropic confirmed a $50b deal with Fluidstack for cloud and we will have more details next week. And on the data centre side, clouds continue to need large volumes of resources and infrastructure. AWS has just signed a $5.5b deal with Cipher for a site in west Texas that is in the hundreds of MWs, while Lambda confirmed it would take down multi-MW capacity with Prime Data Centers in Los Angeles. The need for AI infrastructure continues to drive colocation leasing and CoreWeave remains very active. It is said to be partnering with Bulk for data centre capacity in the Nordics and both were involved in financing efforts recently. Bulk secured financing for the Norway expansion and CoreWeave increased its credit facility.
All this speaks to one of the main takeaways from the past week: neoclouds are going to start self-building as a way to offset the risk in using data centre colocation. CoreWeave confirmed two self-build projects in its pipeline, but stated very clearly that it intends to continue using colocation and will use multiple partners. That will not stop. But in order to de-risk and to get more aligned with what is going in with resource availability and data centre technology trends, it feels self-building is an increasingly important part of the puzzle. CoreWeave’s rapid growth has got it to this point earlier than expected. But the neocloud sector is likely to produce a few more self-builders sooner than later. This will add importance nuance to the demand profile for data centre capacity, but there is little cannibalization expected.
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