WSS: Hyperscalers kick off earnings season and show more growth acceleration, raise CapEx commitments
Earnings season is now well underway as reporting for the last quarter of the previous calendar year has started. The hyperscalers fittingly go first and in the past week we saw Amazon, Microsoft, Google and Meta all report earnings results for the 4Q25 period. The results were impressive as Amazon and Google, in particular, showed meaningful growth acceleration. This even as the two cloud infrastructure businesses combined now generate around $200b in annual revenue now. Oracle is on a different fiscal year cycle and recently reported, also showing accelerating cloud infrastructure growth, while Microsoft held steady at close to 40% y/y growth. Strangely however, the markets did not seem to think Microsoft did all that well, focusing in on the fact that it missed its target. Needless to say, expectations are high and many do not understand that there are going to be some ups and downs q/q, which basically have nothing to do with the overall demand profile and the health of the growth trajectory.
Meta does not have a cloud infrastructure business just yet, but disclosed CapEx numbers that speak to how much investment in data centre infrastructure it plans to make in the coming year. Amazon, Microsoft and Google also shared new CapEx projections and the numbers continue to climb. Notably, the hyperscalers also were more transparent, sharing splits between what is spent on data centre infrastructure versus servers and chips. Meanwhile, Meta confirmed a $6b partnership with Corning to support its build-out of fibre infrastructure.
Hyperscalers deploying CapEx to build inventory is a key driver of growth and AWS has credited the growth acceleration seen in the last few quarters to the ability to get capacity online. It was able to deploy over a gigawatt of capacity and reported being able to monetize this very quickly. The same dynamic will apply to the other hyperscalers as they have all consistently reported demand exceeding supply. The pace of growth will increasingly be a function of how fast deployments can be executed, translating demand into revenue growth.
The Chinese hyperscalers are rebounding and also investing heavily in data centre infrastructure to support demand. There are media reports that Alibaba Cloud is going to raise its CapEx projection and we came across data points and reporting that ByteDance will also do the same.
Another theme coming out of the hyperscale earnings week was around growth drivers. Amazon was quick to point out that it is seeing growth from both traditional raw cloud infrastructure and demand for AI-oriented services and infrastructure. Notably, it also pointed to resurgent enterprise demand as on-premise migrations continue to push forward as organizations try to move data and workloads on to hyperscale clouds or in close proximity (through colocation and interconnection) in order to take advantage of the new technology and innovation that is happening. What will be the last major phase of migration from the on-premise world to off-premise and outsourced is well underway.
There were less large-scale deals in the recent quarter, but that continues to be a driver behind hyperscale cloud infrastructure growth and will reflect in the coming quarters. In the past week, there was another large AI deal as Perplexity committed to a $750m deal to run its AI platform on Azure.
Finally, there was strategic activity of note from across the ecosystem. The managed public cloud segment continues to see movement and a number of acquisitions have been focused on acquiring technology and capabilities. DoIT has made a number of these kinds of deals and the latest saw it pick up a Canadian company called SELECT for its data management capabilities. Meanwhile, Digital Realty entered the market in Malaysia with the acquisition of a carrier hotel, and there were a few acquisitions of data centre assets involving the likes of nLighten and US Signal. On the investment side, SoftBank acquired digital infrastructure specialist DigitalBridge in a deal that has been in the works for a while as capital sourcing and access to resources continue to be of critical strategic importance. And high-profile hyperscale data centre deals continue to reach the finish line. The latest deal was in APAC, with KKR acquiring STT GDC for an enterprise valuation of S$13.8b. We will have details later this week.
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