WSS: Earnings season results suggest the sky is not falling and the pun is intended
The sector continues to push forward amid continued discussion about the sector’s growth trajectory and the question of whether it is approaching an over-build situation. Earnings season has provided some clues and the hyperscale platforms are typically the first to report. In the last few weeks, we looked at the results coming from Meta, AWS, Oracle, Microsoft and Google. The hyperscalers reported – more or less uniformly – that demand is exceeding supply and additional growth could have been recorded if the supply was there to support it. The hyperscalers also reported heavy CapEx investments aimed at building out more inventory. It is a few data points, and part of a larger and complicated story, but one that contradicts the narrative around an impending over-build.
The next tier of cloud providers is starting to report and they help drill into and paint a better picture of the situation on the ground and across the wider market. We took a closer at the results coming from Cloudflare and signs point to continued movement in a forward direction. Cloudflare grew at just under 30% y/y in 2024, continues to win wallet share from increasingly larger customers, and is seeing uptake from AI inferencing. On the data centre colocation side, Equinix saw steady 4Q24 and FY24 results, with AI inferencing driving growth and demand as well, and the xScale business addressing LLM and large private AI demand. Cloudflare is guiding to be nearly a $3b business in 2025 and Equinix is tracking to over $9b.
The DeepSeek developments loomed over the sector’s narrative, but infrastructure operators do not appear to be overly concerned. In fact, the Cloudflare and Equinix results show that if anything, optimization and improved economics for AI model training is going to lead to more demand for inferencing, which will consume infrastructure – data centre colocation, interconnection and cloud infrastructure – that is in line with what is in their respective portfolios. Are we looking at an over-build? The early returns from earnings season suggest otherwise. Growth is steady and consistent, demand looks healthy, and more supply could accelerate growth even further. We saw how the hyperscalers are committed to elevating CapEx, while Equinix continues to build its footprint and Cloudflare revealed that it will step up its network CapEx to meet demand levels. So far, no danger signs appearing.
Earnings season has always been focused on infrastructure providers, but the energy sector is an increasingly critical part of the value chain and its growth and CapEx outlays provide important clues as to what the demand profile of the sector looks like. If hyperscalers are seeing growth and uptake in cloud, they will build out more infrastructure to support it. And the data centre operators hoping to host this infrastructure will procure the necessary resources to build data centres on behalf of hyperscalers. The demand coming from both these two communities can be seen clearly in the results disclosed by Dominion Energy and AEP, and we have some details. A quick preview: the hundreds of megawatts of consumption and the gigawatts of requests speak clearly to the state of demand. Again, it seems clear that forward planning is getting more aggressive and over a longer period of time. That can only be for one reason.
Demand continues to grow in some of the world’s largest markets and infrastructure expansion is moving in tandem. We recently saw STACK Infrastructure confirm a second major project in Virginia, with a planned 144MW build in Ashburn, while AirTrunk in APAC is set to build a second campus in Johor, Malaysia that will deliver inventory of up to 270MW. On the emerging market side, Thailand continues to see significant momentum. A few of the recent developments we touched on in the past week and next include ByteDance building data centres in Bangkok, GPU cloud provider Siam AI making investments, Evolution Data Centers breaking ground on its project in Bangkok, and Alibaba Cloud launching a second AZ.
Meanwhile, the constraints around energy are pushing operators to research and partner for alternative energy sources. Natural gas is an area getting more attention and Vantage Data Centers confirmed it is working with VoltaGrid to assess how its micro-grid technology can support Vantage’s portfolio of North America-based data centres.
Finally, on the strategic side, we saw managed public cloud provider DoIT make another acquisition as it looks to build out its portfolio and capabilities. DoIT recently acquired a company called LiveDiagrams and added to this with the acquisition of a company called PerfectScale, an automation platform for managing Kubernetes-based workloads across public cloud infrastructure. The use of M&A to enhance technological know-how shows how the managed public cloud space is starting to see more overlap between the MSP function and the DevOps and technology pieces. Providers like DoIT are trying to integrate them into a single offering, with managed services supported by increasingly sophisticated capabilities.
We will of course have more on all these topics in the coming weeks and it will be at the centre of the discussion in Las Vegas at our annual executive summit infra / STRUCTURE. Some good news on that front: we have already opened registration with early bird pricing.
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