Industry Update Summary Industry: Communications Infrastructure - Data Centers Key Points 1. **Hyperscale Data Center Leasing** In Q1 2025, approximately 1.9GW of hyperscale data center leasing was recorded, with Oracle (ORCL) and Amazon (AMZN) leading the market, each leasing around 600MW. This represents an increase from the 1.3GW noted in Q1 2024, indicating strong demand despite a slight moderation in sentiment around hyperscale demand due to Amazon's pullback in U.S. colocation deals [2][3] 2. **Microsoft's Equipment Order Cancellations** Microsoft has canceled significant orders for long-lead time data center equipment, including around 1,000 backup diesel generators and transformers. This reflects a broader slowdown in data center demand, impacting equipment manufacturers negatively in the near term [4][5] 3. **Enterprise Demand Trends** Enterprise demand in Q1 2025 showed strong growth compared to Q4 2024 and Q1 2024, with increasing rental rates and favorable terms for landlords. However, caution is advised due to potential macroeconomic impacts on future demand [6] 4. **Impact of Tariffs on Build Costs** Recent tariffs are expected to increase data center build costs by 5-15%, varying by operator. This could lead to margin compression for equipment manufacturers and may affect project yields if costs cannot be passed on to customers [7] 5. **Amazon's Shift in Data Center Strategy** Amazon is slowing down its colocation data center leasing and focusing more on powered shell deals and self-builds. This shift is part of a broader strategy to enhance efficiency across its data center operations [8][10] 6. **Google's Colocation Activity** Google has signed several colocation deals in Q1 2025, indicating a response to its near-term capacity deficit. The company is actively seeking to bridge this gap through various leasing strategies [11] 7. **Microsoft's Market Position** Microsoft remains in a "digestion mode" with limited leasing activity in Q1 2025, but there is optimism for a return to the market in late 2025 as it aligns its capacity delivery with updated demand forecasts [12] 8. **Oracle's Continued Demand** Oracle has been active in securing capacity to support its OpenAI training workloads and OCI backlog, despite some organizational changes that have temporarily slowed decision-making [13] 9. **Meta's Data Center Activity** Meta has resumed activity in the data center market, securing over 500MW of capacity in Q4 2024 and continuing to seek additional capacity in Q1 2025, primarily to support its Llama project [14] Additional Insights - **Market Sentiment** There is a noted moderation in the urgency of hyperscalers to secure capacity, particularly in Europe, which may reflect broader economic uncertainties [3] - **Long-Term Outlook** While current demand dynamics show strength, the potential for macroeconomic factors to impact future enterprise demand remains a concern for industry stakeholders [6] - **Valuation Methodology** The report outlines a valuation methodology for data centers that includes discounted cash flow (DCF) analysis and relative value approaches, considering various financial metrics [17] - **Investment Risks** Key risks include sensitivity to interest rate movements, disruptive technology changes, and macroeconomic deterioration that could affect demand and valuation multiples [19]