WSS: As bubble debates continues, more expansion, strategic activity and hyperscale leasing
The sector remains remarkably busy even as the year starts to wind down. We recently published a report on the AI bubble, which has been a big point of contention among investors and operators. Our report presented the case against the AI bubble, but is only one point of view. The Structure Research team has a number of different perspectives on this question, and to be sure, there are concerns about what is happening. In the coming weeks, we will publish another report on the AI bubble, summarizing why there should be at least some concern and a chance that a correction could be coming in the near future. One of the data points that the optimists point to is the ongoing reporting of demand exceeding supply coming from hyperscalers. There were more comments recently from the likes of Google and Microsoft, while early questions are already starting to be asked about Oracle’s build-out for OpenAI. We try to examine these developments a bit closer.
The past week saw a number of developments that speak to the volume of activity on the ground that continues to push forward. Fluidstack is a neocloud that has consumed a large volume of data centre colocation capacity in the last several months. Notably, it has partnered with Google for financial guarantees on these contracts, and is now reported to be targeting a capital raise of $700m. Large GPU deployments continue to be built and Vultr is working on an AMD-based supercluster in Ohio that will see it invest over $1b. We have details on the data centre partner and go-to-market plan. The momentum in the space can also be seen in the activity coming from the supply chain, which supports all the build and expansion activity. Digital Realty, for example, recently committed to a large order of nearly $400m with Schneider Electric, covering UPS systems, low-voltage switchgear and pre-fabricated power skids. The deal is about both serving growth requirements, but securing supply chains in what can be an unpredictable environment.
While talk of a bubble continues, there is no shortage of expansion activity happening on a global basis, and plans are being made in the face of expected demand. On the hyperscale side, Microsoft recently committed $17.5b to build out more cloud and AI infrastructure capacity in India, while AWS is set to invest $15b in Indiana where it is building out a massive cluster for Anthropic’s Claude. AWS recently shared details about its infrastructure business at the annual re:Invent developer conference and we have some of the highlights. Meanwhile, there was significant expansion activity coming out of APAC. Princeton Digital Group topped off its third building in Johor, Malaysia and started on another, while Macquarie Data Centres continues to expand in the burgeoning Sydney market. Empyrion Digital is also working on a project in Johor. With all the activity in Johor comes increased scrutiny and we look at how regulatory bodies are starting to tighten the approval process based on the accumulating constraints around water and power.
The end of the year always seems to see an increase in strategic activity and the past week saw a number of transactions. TierPoint in the US received an increased investment from lead investor Argo Infrastructure Partners and NorthC in Europe was acquired by Antin Infrastructure Partners. There also continue to be strategic acquisitions and investments made to acquire technical know-how and capabilities. On the cloud side, Akamai acquired serverless technology provider Fermyon as it looks to widen the scope of what it can do for developers in edge scenarios and Applied Digital invested in liquid cooling specialist Corintis. New company formation remains a good indicator for sector health and Actis launched a new LatAm hyperscale operating platform called TERRANOVA.
Back to the debate around sector health and AI … one of the important things to keep in mind is that while AI presents a significant long-term growth opportunity, ‘traditional hyperscale cloud’ continues to push forward aggressively and is driving the overall health of the infrastructure sector. Hyperscalers continue to build and take down colocation capacity as they support cloud growth and start the process of building out AI-oriented infrastructure. NTT GDC recently disclosed 130MW of leasing to hyperscalers in multiple US markets, showing that these wheels are still very much in motion.
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