Hyperscalers vs Data Infrastructure Companies - Market Expectations

Really interesting end discussion on the BG2 podcast:

(starts at 1:18:22)


  1. Tech doing well considering 10 year rate still increasing

  2. The big Cloud providers (aka Hyperscalers) got a ZIRP benefit around Covid, have declined, but expectations are they go back up thanks to AI.

  3. The Data Infrastructure companies (Brad cites DDOG, MDB, SNOW, ESTC, CFLT, etc. had a bigger benefit during Covid, but then a bigger pullback, and now expectations are they don’t get back to the revenue they previously had.

However, Brad’s group thinks that’s mostly wrong.

  1. Thanks to AI, the demand for engineers is decreasing, and the need for the “elite” Bay Area engineers is also decreasing, so companies may be saving money on development costs, including SBC (stock-based compensation).

I enjoyed watching these two, early Uber investors and Tesla investors, debate how both companies will win, despite the impending autonomy phase change. The fact that the end to end neural net Tesla model is scalable and no longer compute constrained was accentuated well, IMO. Is it me or are long term Tesla investors very giggly lately.

The recent moves by Elon to change perception of Tesla from ‘just an auto company’ to an ‘AI/Robotics company’ has begun in earnest and investors are nervous. Legacy auto convulsions are likely to be violent.
Will stock price action jump with any single announcement or when this seemingly inevitable Foundational World Model finally effects the companies P&L.

Buckle up, it’s going to be a bumpy ride.

To your point on if/when Data Infrastructure Companies are expected to grow again, they were saying how the best companies are staying private longer. This is likely why we’re still looking at Crowdstrike. I’m with Brad. I like the opportunity for some delta.


Interesting take here. I read a positive note from an analyst at TD Cowen on DDOG this morning: “We expect a solid beat, similar to last qtr which implies 28% growth, an acceleration vs. 26% last qtr (10 pt easier comp). Our partner checks were bullish (strong qtr, share gain opportunities). Sales headcount growth saw a nice up-tick & our CIO survey was bullish. We would be adding to positions.”

It got me thinking about how DDOG management promised us we needed to lap the bad COVID Q before things got better, and they delivered on that promise.

There have been some similar suggestions by DDOG management that this may be an encouraging year. In Q2 2023, they talked about optimizations calming down as a turning point for growth: “The timing of the lapsing of optimization is critical to that. We said we see green shoots has been said, but it’s too early to call that. So that’s the biggest factor.” (Oliver Pomel - Q2 2023 CC). In the words of MSFT’s CEO on their last conference call, optimizations have slowed down: “But that period of massive, I’ll call it, optimization only and no new workloads start, that I think has ended at this point.” (Satya Nadella - Q2 2024 CC).

In Q3 2023, DDOG’s Management also pointed out lapping comps as a possible turning point for growth: “The comps have gotten increasingly easy to lap, and we will let everybody know if we do produce an organic growth that’s higher this Q4 than it was in Q4 last year, we will have in this period trough in that retention and it will begin to head up. So that’s sort of how we think about it.” (Oliver Pomel - Q3 2023 CC). MSFT’s CFO said something similar about the comps getting easier as this year goes on: “No, maybe I’ll just add just a few things to that. I think whether you use the word lapping, these optimization comparables or the comparables easing is all sort of the same thing, that we’re getting to that point, in H2 that’s absolutely true.” (Amy Hood - Q2 2024 CC).

Slowing optimizations and easier comps could be a good combination, imho.

@laneylawyer on X

No advice. Just having fun.