WSS: Data centre earnings reflect AI and hypercale cloud growth impact
A busy week saw reports from earnings season, more hyperscale CapEx increases and neocloud and AI infrastructure expansion activity across Canada and Europe. On top of this, there was continued strategic activity, with more investments in data centre operating platforms and financing to support data centre development projects. All indications are that demand remains steady and this activity on the ground reflects the need to build inventory to accomodate what is coming.
We have already looked at the results of the hyperscalers – Oracle, Amazon, Microsoft, Google – and growth has been steady and consistent, with acceleration starting to kick in. Across the board, hyperscalers are reporting elevated levels of CapEx that is expected to continue through at least the end of the year. Meta is a hyperscaler that is not in the business of cloud infrastructure, but is investing heavily in data centres, and it reported earnings this week that also saw increased levels of CapEx investments.
Cloud infrastructure and CapEx growth eventually, or soon after, pushes through the infrastructure ecosystem. Hyperscalers take down colocation to house the cloud infrastructure that end users are consuming and many of them are large enterprises. The uptake in AI from enterprise end users that is driving these investments has started to translate into a significant level of increased demand for colocation and interconnection. Organizations are accelerating transformation projects and moving infrastructure to cloud or in close proximity to cloud – ie. colocation with interconnection options for connecting to cloud. And this dynamic was reflected in the recent results from Equinix and Digital Realty, which saw the enterprise category driving overall growth. There has been a bit of a pivot to enterprise colocation that is being driven by AI growth and adoption. It is not just about the training models and large deployments. Ai is driving inferencing workloads and enterprises are pushing into colocation data centres and using interconnection. It is another indication of how AI is adding fuel to the hyperscale fire and it is happening in primary locations.
The growth in AI is pushing neocloud growth as they bring GPUs to the market in a service-based delivery model. CoreWeave is driving a lot of this and is now building out a new data centre outside Toronto in Cambridge, Ontario. This is CoreWeave’s first Canadian data centre and the anchor tenant is Canadian enterprise AI provider Cohere. A JV has been formed to build the data centre involving investors and operating company Ascent. Meanwhile, last week we saw another project kick off under the Stargate banner in Norway, supporting OpenAI’s expansion. Nscale and Aker came together to build what will be the first Stargate location in Europe. CoreWeave is also hosting a lot of OpenAI infrastructure and in the past week closed a debt facility to support this expansion. Meanwhile, in other financing developments, eStruxture secured financing for more data centre development in Canada and Serverfarm added sustainability amendments to its $1.6b credit facility.
There continues to be strong investment interest in a healthy and growing sector. In recent weeks, there have been a number of investments made and just last week we saw Snowhawk and Nuveen take a stake in Prime Data Centers, while Apollo acquired a majority stake in Stream Data Centers. Snowhawk and Nuveen also recently both invested in CleanArc Data Centers.
The close of every month sees us summarize the most important thematic developments of the last 30 days. In July, hyperscale earnings and CapEx were of course, top of mind, while we delved a bit more into the sector’s demand profile, which has been impacted by hyperscale pullbacks, but offset by elevated outsourcing levels driven by the desire to adopt AI.
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