WSS: Earnings season shows flow through from hyperscale and AI growth as expansion activity shows no signs of slowing down
The sector had a busy week as earnings season is now in full swing. Last week, we took a look at the results coming from the hyperscalers (AWS, Microsoft, Google) and there are emerging signs across the board that growth is accelerating. This will inevitably flow through to the rest of the infrastructure ecosystem, impacting the performance of data centre operators, neoclouds and managed infrastructure providers. Equinix and Digital Realty remain the bellwether publicly listed data centre operators and we delved into the results in more detail. Both turned in solid results, with leasing activity continuing at a steady pace and increasingly driven by AI requirements, which are populating the pipeline. On the supply side, there is plenty of expansion activity planned, speaking to demand signals that are both short-term and long-term in scope.
The data centre segment has only a few publicly listed companies, but the transition cryptocurrency firms are making is providing more reporting around data centre colocation. Applied Digital is one of those firms and reported its quarterly results, which are showing the impact of signing CoreWeave for its data centre campus in Ellendale, North Dakota. CoreWeave’s attempt to acquire Core Scientific fell through recently, but Core Scientific is another listed provider reporting data centre colocation results and we will have details next week.
The public markets are also home to webscale cloud and managed infrastructure providers. OVHcloud reported solid growth in the recent quarter, while iomart Group in the UK is not performing as well, but continues to transition the business to get more exposure to the value chain around managed public cloud services.
Neoclouds are driving growth across the sector as AI continues to be built out and we continue to look for evidence that both end user uptake and revenue is being driven through solid business models. Anthropic has reported a steady revenue stream and there is reporting of late that it is raising its revenue growth expectations. Anthropic is one of the scaling AI platforms that are pushing public cloud infrastructure growth, mainly on AWS, but now on other platforms such as Google Cloud as it looks to diversify its infrastructure partners and secure capacity runway. And OpenAI continues to build out aggressively. It is now set to run on AWS, signing a massive seven-year deal worth up to $38b. A good portion of the capacity is set to come online by the end of next year.
AI infrastructure development is building more momentum and we have seen in recent months how the Stargate initiative is being expanded. STACK Infrastructure and Vantage Data Centers are now building for Stargate and Related Digital is the latest to participate, committing to a gigawatt-level build in Michigan. The week saw other major infrastructure expansions and both are in Texas where land and energy are available. IREN signed a deal worth almost $10b to build data centres for Microsoft in Childress, Texas, while TeraWulf is set to build a data centre campus in Abernathy, Texas for neocloud FluidStack. But things do not always move in a straight line. The Stargate UAE project has hit some roadblocks, with delays in NVIDIA-based GPUs expected due to various geopolitical factors.
As the sector transitions to a new phase of growth and expansion, there has been a corresponding impact on strategic activity. Technology vendors are jumping in aggressively, acquiring technology and capabilities to enable things like liquid cooling and advanced thermal management. Eaton has been busy acquiring technology companies and recently added Boyd Thermal, to raise the bar with its liquid cooling capabilities. Vertiv is thinking along the same lines and acquired PurgeRite to enhance its liquid and thermal management capabilities. Meanwhile, investors are also changing the way they play the infrastructure value chain. Acquiring operating platforms is still viable, but increasingly competitive. We are now seeing investors make bets in energy as a way to tap into the sector’s growth. We saw Blackstone last year take an equity stake in energized land provider Lancium and buy a power plant in Virginia as examples. In recent weeks, Brookfield did something similar, investing $5b in fuel cell technology provider Bloom Energy.
Finally, there is emerging activity in Saudi Arabia as it starts to emerge as a hub for Ai and hyperscale infrastructure development. AirTrunk has built a footprint across APAC and has partnered with HUMAIN to invest $3b in a new data centre project in Saudi Arabia, which represents its first foray into the region. HUMAIN is a new venture focused on infrastructure development that Saudi oil company Aramco also took a stake in, alongside the country’s sovereign wealth fund.
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