Datacentre expansions fuel record rise in capital expenditure of hyperscale cloud giants

The capital expenditure of the hyperscale cloud and internet giants is up 53% on 2017, with much of that investment devoted to increasing the size of their global datacentre footprints.

According to Synergy Research Group’s third-quarter look at the capital expenditure (capex) habits of the world’s 20 biggest cloud and internet service providers, the first nine months of 2018 saw a marked rise in the amount of money these firms are spending on expanding their operations.

So much so, the collective capital expenditure of this group was 53% higher than in the first nine months of 2017, fuelled in no small part by the datacentre expansion activities of the top five performers: Google, Microsoft, Apple, Amazon and Facebook.

In aggregate, these five tech giants accounted for 70% of the 20-strong group’s collective capital expenditure, which hit $26bn during the third quarter of 2018, with Microsoft emerging as the biggest spender overall.

The number of hyperscale cloud datacentres in operation around the globe now stands at 423, which suggests three additional facilities have come online since Synergy Research published its second-quarter findings in August 2018.

The results are in keeping with the findings of other market watchers, with CBRE reporting record-breaking levels of datacentre construction and take-up in the European market, fuelled by the ambitious expansion plans of the hyperscale cloud and internet giants.

John Dinsdale, chief analyst at Synergy Research Group, said the continued growth in the spending power of the hyperscaler could have far-reaching benefits for the whole cloud and datacentre supplier ecosystem.  

“Business at the hyperscale operators is booming. Over the past four quarters, their year-on-year revenue growth has averaged 24%, and they are investing an ever-growing percentage of their revenues in capex,” he said.

“That is a real boon for datacentre technology suppliers and colocation/wholesale datacentre operators.”

The ability of their smaller and less well-funded competitors to keep up and outperform the hyperscalers is getting increasingly difficult the bigger they get.

Indeed, earlier this year, further data from Synergy Research revealed firms wanting to compete with the big five hyperscalers would need to invest at least $1bn a quarter to keep pace with their levels of growth.

“[This] has created a huge barrier for companies wishing to meaningfully compete with those hyperscale firms. This is a game of massive scale and only a few can play that game,” added Dinsdale.