WSS: Neocloud and AI expansion pushes forward as webscale tier uses M&A to accelerate value-add
It was a busy week across the sector that was again marked by neocloud and AI expansion and strategic activity. As the sector continues to debate the viability of AI demand, OpenAI raised $122b and shared more data points about its growth trajectory. Needless to say, a significant portion of this capital will go to data centre and infrastructure development, and OpenAI shared some notable details about the data centre and infrastructure partners it is working with. Reports indicate OpenAI is now generating $2b in revenue a month and the pace of growth is expected to continue accelerating, providing at least one data point underscoring the current demand profile in the market. There has been reporting about OpenAI seeing data centre executive departures, delays in Stargate projects, and having to dial down compute infrastructure plans leading up to the recent funding round. These developments are worth noting, but do not take away from the fact that demand is healthy, though it does point to the ceiling being lowered from previous expectations. There are sure to be more twists and turns, and changes of plans, but there are no clear signs that the overall trajectory of the sector has been knocked off course.
The neocloud space continues to push forward aggressively. Last week, CoreWeave closed a $8.5b credit facility, and then confirmed it had expanded its cloud infrastructure MSA with Meta in a deal worth up to $21b. Meta continues to be a huge builder and consumer of builder data centre capacity and cloud infrastructure, and is driving a meaningful portion of the market on the demand side. Other neocloud platforms are raising capital and positioning to build infrastructure, with Europe seeing a lot of the activity in the past week. France’s Mistral AI secured $830m in debt for development in Paris, while Nscale and Nebius are both building capacity in Finland. The Nordics continues to attract hyperscale data centre developments. ByteDance’s TikTok was meant to expand further in Dublin, Ireland, but is now reported to be expanding more aggressively in Finland and Norway. Australia is another part of the world starting to see large neocloud deployments, and in the past week, we saw Sharon AI confirm a large contract for a deployment that will land in a NEXTDC data centre in Melbourne. Many operators in global markets are waiting for the neoclouds to expand globally. This is an inevitability for the rapidly scaling neocloud platforms, but is not necessarily taking off just yet. Fluidstack has been growing quickly, with the support of Google, but is reported to be dialling back its European deployments for now, to focus on building infrastructure in the US. It is one data point only, but signals how early the neocloud sector is in its build-out. International expansion will take some time to play out.
While the neoclouds are making a lot of noise, the webscale peer group of cloud providers is also making forward progress. Webscale providers performed well in the latest reporting period and a lot of this was driven by the headway being made into the inference space, hosting GPUs and providing tools for agentic AI application development. To augment these capabilities, both DigitalOcean and OVHcloud were active in M&A in the past week. DigitalOcean acquired Katanemo Labs, which comes with a development team and an open source project called Plano that provides a data plane that is used for building agentic workloads. Meanwhile, OVHcloud acquired Dragon LLM, a French startup that is focused on fine-tuning of AI models for specific verticals and industries. Both DigitalOcean and OVHcloud are enhancing the tools that are delivering on top of cloud infrastructure, effectively creating a PaaS experience for AI developers.
Growth across the sector continues at a steady pace and there was more expansion activity. 1623 Farnam is expanding in Omaha, Metrobloks is set to invest over $1b to build a data centre campus in Missouri, Switch acquired land in Las Vegas, and Meta partnered with Entergy Louisiana for energy development to support the new campus it is building in Richland Parish. Meanwhile, in APAC, Princeton Digital Group recently entered the market in Seoul, South Korea.
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