WSS: Earnings season shows more growth momentum and CapEx commitments; additional indicators seen in vendor capacity increases, leasing
Earnings season is in full swing and we took a closer look at the results coming from across the ecosystem. We have already covered the US hyperscalers (AWS, Microsoft, Google, Oracle), and in the past week, the Chinese hyperscalers Alibaba and Tencent reported. The Alibaba Cloud arm continues to perform well and showed more revenue growth acceleration, driven by AI tailwinds. Demand levels are healthy and Alibaba confirmed that it would likely surpass its most recent three-year CapEx projections as it continues to invest in the cloud and AI business. Tencent Cloud is not quite on the same growth trajectory as it has prioritized other businesses within its portfolio. But Tencent Cloud remains a long-term priority and Tencent is ramping up CapEx to build out more capacity to support future plans. Meta also reported in recent weeks and shared details about its own CapEx investment levels, which like essentially all the other hyperscalers, has increased as sector tailwinds keep the momentum pushing forward.
On the neocloud side, CoreWeave also reported its earnings, and it showed a lot of the same dynamics seen in the hyperscale space. Growth is accelerating, and demand levels are high and outpacing supply, which has resulted in a rapidly accumulating backlog. This has led to more land, energy and data centre colocation acquisition as CoreWeave tries to build out capacity as quickly as possible. CoreWeave also continues to sign deals and its customer base is diversifying quickly, addressing one of the main concerns of skeptics. Elsewhere in the sector, the data centre space reported, and we looked at the results coming from Iron Mountain and American Tower’s CoreSite. Data centre colocation sees more of a steady growth pattern, with less oscillation, but leasing levels continue to be healthy and both Iron Mountain and CoreSite saw healthy progress in the recent quarter. We also look at the results for webscale provider Fastly and SMB provider GoDaddy. The SMB space did not see the kind of growth acceleration seen elsewhere in the market, but held steady.
While earnings is always a good benchmark for growth in the sector, vendor momentum can also provide clues. Corning, for example, has been expanding its manufacturing capabilities and recently partnered up to support $6b worth of Meta’s fibre builds. In the past week, NVIDIA jumped in as well, investing in Corning to help it increase its optical connectivity manufacturing capacity further. Needless to say, Corning ramping up production is a clear indicator of demand.
Another clear indicator for demand is deal size and we recently saw Anthropic commit to using Google’s TPU-based cloud infrastructure services. The value of this deal was revealed to be around $200b over years. Anthropic is buying up as much capacity as it can get its hands on and also committed recently to Akamai’s cloud service for both CPU and GPU-based cloud infrastructure. We will have a few more details on this next week. Deal sizes are also reflected on the data centre side and we saw two large-scale US-based hyperscale deals in Australia in recent weeks, with NEXTDC leasing 250MW and CDC Data Centres getting a commitment for 555MW.
Meanwhile, neocloud remains a driving force in the space. Lambda secured a $1b credit facility to support expansion efforts, while CoreWeave shared details on its earnings call about the various refinancing and capital raising it has done to support capacity builds and procurement. CoreWeave is working closely with Core Scientific on building capacity and it recently disclosed gigawatt-level expansions in Pecos, Texas and Muskogee, Oklahoma. Meanwhile, another CoreWeave data centre partner Applied Digital, secured a $300m bridge facility and completed the spin-out of its cloud infrastructure arm, naming a new CEO to lead the business. There are still operators in both the business of data centre colocation and cloud, but expect more specialization and focus as the AI infrastructure market continues to mature.
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