WSS: Hyperscale, neocloud growth continues to drive infrastructure absorption; strategic M&A looking for global hyperscale data centre platforms
It was a busy week across the sector as hyperscale data centre and cloud infrastructure continues to be built out and absorbed by neocloud and hyperscale platforms. There was also some notable strategic activity as another hyperscale data centre operating platform transacted at an unprecedented valuation.
Applied Digital has been a test case for more remotely located hyperscale and AI training infrastructure, building a data centre campus in Ellendale, North Dakota called Polaris Forge 1. The first tranche of capacity at this campus will be leased by CoreWeave and they have options on the rest of the site. Given the interest and demand profile, Applied Digital recently started building Polaris Forge 2 in Harwood, North Dakota, and confirmed in the past week that it has signed a lease with a US-based hyperscaler for an initial 200MW commitment. There are options for further expansion capacity and the tenant is not CoreWeave, but likely one of the big four hyperscale public clouds. Applied Digital seems well on its way to leasing two full GW-scale campuses to cloud infrastructure platforms building AI-oriented infrastructure. This speaks clearly to demand levels and capacity requirements, with time-to-market being a big part of the story.
AI end users like Anthropic, builders of the Claude chatbot, are raising capital and also looking to build out infrastructure. Anthropic recently raised a $13b Series B round and is showing aggressive revenue growth. Anthropic was reported tin the past week to be working with Google for cloud infrastructure and that was confirmed as of us writing this update (more details coming). It is not entirely clear if Anthropic is just using cloud infrastructure or working with Google for its TPUs, and building out its own data centres. But that should come to light sooner than later. Google has been taking stakes in companies with land, energy and energy-related expertise, and we could see these assets come into play as Google looks to help customers like Anthropic solve their infrastructure capacity challenges.
Neocloud momentum is building as AI technology continues to mature. And the neocloud infrastructure services are pushing forward and developing more advanced capabilities. CoreWeave rolled out an object storage service to support AI workloads and is building – with the help ofsome M&A – new reinforcement learning capabilities as fine tuning becomes an increasingly important part of AI technology development. The innovation at the cloud service delivery level is a good indicator for where things are headed and signals a healthy demand profile.
Cloud infrastructure is ultimately a service and things can and do go wrong. In the past week, we again saw AWS go down in the US-EAST-1 region based out of Northern Virginia. AWS outages seem to stem from this region more often than not. There are older facilities here, but the AWS cloud and customer application architectures are also still quite centralized and that is part of the reason why there can be cascading issues across services stemming from US-EAST-1.
But while there are inevitable hiccups like this, the sector continues to grow and there are plans to take this to another level. This will require significant capital investments and there is no shortage of investors willing to put their skin in the game. Aligned Data Centers became the latest hyperscale data centre operating platform to transact as a consortium including BlackRock and MGX will acquire the company and invest further in regional and global expansion. Meanwhile, hyperscale platforms are heading to the capital markets to support expansion initiatives. Meta formed a JV with Blue Owl Capital to move some CapEx off its balance sheet and share in the investment of a major build in Louisiana. And elsewhere in the US, Meta is building in El Paso, Texas. Look for this model to become more common in the near future.
Finally, the sector also saw more activity around interconnection and connectivity-oriented data centre assets. Telehouse broke ground on more expansion capacity in London, while DC BLOX confirmed plans to expand its CLS in Myrtle Beach, South Carolina
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