WSS: Launches, JVs and investments driven by demand and capital requirements for expansion, while geopolitics lurks in the background
An eventful week saw the sector gather at the PTC event in Hawaii, while there were various developments highlighted by launches, investments and partnership activity, and movement in the regulatory landscape. The sector continues to garner significant interest given the long-term upside potential and increased demand velocity. But increasingly, questions are being asked about if and when this is going to materialize. Will things move in a straight line? Or will there be detours and bumps in the road? We’ll have extensive commentary on this in the coming weeks.
Data centre infrastructure expansion remains a good demand signal and there continues to be steady activity. Edged Energy launched two data centres with multi-MW capacity in Irving, Texas and Kansas City, while on the GPU cloud side, CoreWeave took down leases with Digital Realty and Global Switch in the UK to support its entry into Europe. There was also significant activity coming out of APAC. In Malaysia, STACK Infrastructure expanded into Johor, while EdgeConneX and ESR, in a JV with CloudHQ, are set to enter the Osaka market with large builds that will push over triple-digit MWs. Vantage Data Centers has been building in Osaka as well, and is on its way to finishing a first building on its campus. In relatively short order, Osaka has become a full-fledged hyperscale market.
Meanwhile, on the strategic side, more capital was raised aimed at supporting development and expansion. Aligned Data Centers completed a $12b raise, with both equity and debt, while Applied Digital partnered with Macquarie Asset Management to finance completion of its data centre build in Ellendale, North Dakota targeted at serving a hyperscale customer. In other strategic developments aimed at marshalling capital resources, Digital Realty disclosed pricing for €850m in guaranteed notes and H5 Data Centers formed a JV with private equity firm Novacap to pursue growth opportunities across its US-based footprint. The joint venture is an increasingly common way to put capital to work – combining resources and balancing risk – in more targeted and project-based scenarios and will be a way for a wider range of investors to access the data centre market opportunity. JVs are oriented to both capital and real estate, and in recent weeks, PowerHouse Data Centers partnered with real estate firm Poe Companies to develop a data centre in Louisville.
The growth in requirements has caused further separation in the market, with operators focusing on the pre-development and master planning phase. The model allows for significant flexibility. Energized and permitted land can be leased or sold directly to data centre operators or hyperscalers. Tenants in some cases will want to outsource the building and construction of a data centre, and the new breed of master-planned operators are considering this approach. Tract confirmed it will go down this path. It has assembled energized land in multiple US markets and has now launched its build and operating arm Fleet Data Centers in response to customer interest and requests. Tract can now provide a continuum of infrastructure services across pre-development and BTS, powered shell and data centre colocation.
The regulatory landscape is increasingly at the forefront of sector developments as the AI race gets set to take off amid a complicated geopolitical environment. TikTok was shut down as the US government continues to push for new ownership, but received a short-term reprieve. Oracle Cloud is housing a lot of this infrastructure and we look at some of the impact and ramifications. Needless to say, this will be an operational challenge for Oracle as it oscillates between shutting down the app and keeping it running, while providing a possible headwind to the growth of the OCI platform.
On top of the regulatory machinations, the technical requirements around AI itself are sure to create challenges that make uninterrupted straight line progress challenging. Microsoft paused a self-build data centre it is working on in Wisconsin and this is said to be due to considerations around the shifting technology for supporting AI infrastructure. Industry chatter points to at least one hyperscaler, if not more, having to change architectures and putting infrastructure procurement on hold in the last several months. We should expect to see more bumps in the road like this going forward.
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