WSS: Sector growth shows consistency, upward trajectory; hyperscale deals and more expansion
Earnings season is underway and last week we looked at the results coming from the hyperscale segment. AWS, Microsoft and Google all saw strong revenue growth and are investing heavily in CapEx. Meta also reported its results and will significantly increase its CapEx spend as well. Growth acceleration was also a theme at Cloudflare as it reported over 30% y/y growth in the recent quarter. The past week also saw Equinix and Digital Realty – the two main bellwethers on the data centre side – report and both showed steady revenue growth. We have more details on the results for all three in the coming week.
The M&A arena has picked up a bit of pace in recent weeks and there was a high-profile deal on the hyperscale data centre side of the game in APAC. STT GDC was acquired by KKR and a consortium led by Singtel for an enterprise value of ~US$5b. Like other hyperscale data centre deals, the new ownership will invest heavily to push to another stage of growth and expansion as demand levels remain high. There was other M&A activity of note. H5 Data Centres acquired three operating assets from 355 Data Centers and formed a new JV to focus on carrier hotel assets in partnership with experienced Internet infrastructure investor Novacap. And on the managed infrastructure side, CyberlinkASP acquired Fresh Managed IT to help scale up the business in the southeast US.
The neocloud space continues to develop and drive demand for data centre colocation services. Nscale is reported to be possibly considering an IPO and Nebius made a technology-oriented acquisition. Meanwhile, Fluidstack has been expanding aggressively with TeraWulf to build out capacity. TeraWulf is going full throttle into the data centre business, leaving its cryptocurrency roots behind, and acquiring more land and energy to support neocloud and hyperscale infrastructure deployments. In the past week TeraWulf acquired additional multi-MW sites in Kentucky and Maryland.
The likes of CoreWeave and Lambda get the headlines, but there are others in the neocloud category that are on an aggressive growth trajectory. RunPod is a young company that shared some data points about its healthy progress and is a great snapshot of what GPU demand looks like out there in the marketplace, and we have some details.
The shift in the sector to a closer focus on the pre-development stage, and up to the point of build and operate, continues to see momentum. New entrants with valuable land and energy portfolios are pushing into data centre development, but looking to either sell or lease raw resources or get further along, such as with BTS facilities and powered shells. Build and operate is still an option, whether in-house or through partners, but not necessarily the priority. In the past week, we saw a good example of what a successful outcome could look like from this kind of operating model. TA Realty’s digital arm TA Digital sold two data centre builds on its site in Leesburg, VA to the hyperscale tenant. The tenants will take over the data centre and TA will continue to develop the rest of the site with the likelihood that the same hyperscaler could purchase those additional buildings when the sites and shells are developed and ready to go. The part of the value chain where third party data centre operators can be active has started to shift and is one way to address the hyperscale self-build challenge.
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