WSS: Trend lines and growth dynamics across Internet infrastructure
After most of the sector reports its quarterly earnings, we publish a quarterly update that provides a closer look at some of the most important and recurring themes, developments and trends (published on Friday, September 13, 2024 for subscribers). The 2Q24 period saw the Internet infrastructure sector continue to stabilize as positive indicators over the last few quarters carried over and are trending in the right direction. It is not entirely smooth sailing. There are reports of lingering sluggishness with enterprise decision-making, but pipelines have started to fill up, even if sales cycles are still somewhat longer than usual. All in all, however, the sector looks to be tracking in the right direction and hyperscale cloud growth is an encouraging indicator. To be sure, hyperscale is also seeing some challenges, but around capacity constraints. Microsoft and Oracle, for example, reported leaving demand unserved given the unavailability of capacity and inventory. In certain pockets, especially around AI, there is some demand and supply imbalance popping up. This will merit close attention.
What other trends speak to this move in a positive direction? On the cloud and managed infrastructure side, the continual shift away from infrastructure resale and pushing into the value-add layer is one of them and providers like Rackspace report steady momentum in this area. Meanwhile, customer counts continue to climb and a number of providers are reporting faster growth in high-priority customer segments whether by size or vertical. Akamai, Cloudflare and DigitalOcean, for example, are all seeing growth and expansion from its largest customers. Moving back to the data centre and hyperscale side, CapEx is another important metric to follow. All the hyperscalers are investing heavily and projecting big increases in CapEx moving through 2024 and into the next year.
Looking back at the recent week, there was not a lot of M&A activity, but a large transaction finally hit the finish line. In APAC, AirTrunk’s investors sold their stake in the business to Blackstone and Canada Pension Plan Investment Board for $24b (AUD), which works out to somewhere around $16b (USD). The valuation speaks volumes, but the timing does as well. Previous owners Macquarie Asset Management and others invested in AirTrunk back in 2019-20 and was probably expected to hold the asset more in line with an infrastructure-oriented timeline (up to a decade). That did not turn out to be the case. There may have been other factors involved, but the roughly five-year hold seems more in line with private equity horizons and did come as a bit of a surprise. AirTrunk clearly still has runway left and it is positioned well for another growth and expansion phase.
There was more activity in the GPU cloud space. Applied Digital raised $160m and the round included participation from NVIDIA, while CoreWeave selected EcoDataCenter for colocation to house its cloud node in Sweden. CoreWeave is building three cloud locations in Europe in Spain, Sweden and the UK. GPU cloud consumption of data centre colocation has started to move outside the US and will go global sooner than later.
We continue to work through earnings season and reviewed the results coming from Fastly and American Tower. American Tower owns the former CoreSite data centre business and its quarter reflected the steadiness in the sector that has emerged. We have details on American Tower’s inventory, pipeline and demand profile. To provide a bit of a preview, next week, we will look at Oracle’s results, which come a bit later in earnings season due to its unique FY calendar. Oracle’s public cloud infrastructure growth continues (previous quarter’s results) and there are some interesting new developments about how it plans to build data centres and use alternative energy sources such as nuclear.
Speaking of alternative energy sources … this will be a topic of discussion at our upcoming infra / STRUCTURE summit in Las Vegas in a few weeks time (btw, we are closing registration in a few days so grab a spot before it is too late). Daniel Golding, CTO of Appleby Strategy Group, is going to be moderating a panel on on-site power generation and also shared some of his thoughts on this topic with us. Dan and Appleby Strategy Group are pushing a new concept called ‘Triple Plus S’ that makes a ton of sense and basically calls for data centre facilities to source multiple sources – grid, on-site generation, renewables – in concert to meet the specific power requirements of a data centre, whether for primary/steady-site, backup or redundancy. Definitely join Dan’s session in Las Vegas and reach out to him directly to learn more.
Finally, there was more movement in the master-planned data parks segment as the separation between those focusing on pre-development, and those more oriented to build and operate, become more like standalone categories. Tract is adding aggressively to its portfolio and is set to acquire land in the Phoenix area and PowerHouse Data Centers set up a JV to build in Charlotte, North Carolina.
or