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Luke Kawa

Morgan Stanley counts Amazon’s data center square footage to explain why its cloud business will boom

The second-quarter reporting period showed that competitors have been making up ground on Amazon in a key AI battleground among tech giants: their cloud businesses.

Amazon Web Services’ revenues rose 17.5% year on year in Q2, trailing growth of 31% for Alphabet’s Google Cloud and 39% from Microsoft’s Azure. Granted, AWS is still the leader in the cloud, but its slow growth versus rivals was a sore spot for investors after earnings — especially after CEO Andy Jassy fumbled his way through an answer on the subject.

Amazon Web Services had a $195 billion backlog as of June 30, and turning those would-be orders into actual cash requires time and/or increased capacity. Morgan Stanley analysts led by Brian Nowak have a framework for assessing how Amazon aims to maintain its dominant footprint in the cloud business: by literally counting up expected data center square footage.

“Our analysis of AWS expected forward square footage (analyzing S&P 451 Research DataCenter KnowledgeBase and company filings) speaks to how AWS potentially has ~8.5 million/~10 million of data center square feet coming online in ’25/’26. This would be similar to annual square footage added in ’24 and ahead (in some cases significantly ahead) of prior periods,” they wrote. “This expected square footage growth combined with AWS’s ~$3.5 billion historical median incremental revenue per prior year incremental square foot leads to our sensitivity below showing how upcoming data center capacity growth could translate into 20%+ AWS revenue growth in ’26.”

Morgan Stanley AWS revenue growth estimates

However, this analysis also comes with a large caveat attached:

“We acknowledge there are sources of volatility and (ongoing) constraints around incremental revenue per incremental square feet analyses — component supply constraints like chips, racks, cables, boards, power, and demand differences like client readiness and products to drive adoption, product pricing, and yield per foot, etc. — but we think this framework is helpful in showcasing how AWS is investing to match demand and drive accelerating growth in the early innings of the GenAI era.”

Nowak has an “overweight” rating and $300 price target on Amazon.

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Tasha Matsumoto, Luke Kawa
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Tech dragged down the S&P 500 and the Nasdaq 100, but the Russell 2000 posted a new record-high close.

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J. Edward Moreno

Grindr confirms it’s in talks to go private for no less than $15 a share

Grindr said its largest shareholders have “engaged financial and legal advisers” to explore the possibility of taking the company private, according to a Tuesday regulatory filing.

The filing confirms a Monday report from Semafor and adds a tiny bit of clarity: the price for a take-private deal hasn’t yet been determined, the filing said, but it would be no less than $15 a share. Shares of the company, which had surged after the Monday report, pulled back some in Tuesday afternoon trading, to around $12.50.

James Lu and Raymond Zage, the shareholders who together own more than 60% of the gay dating app, have received a preliminary and conditional debt financing proposal of as much as $1 billion, per the filing.

While Grindr has generally performed better than its peers, it is still down about 30% for the year.

The move is being discussed, Semafor reported, as Zage and Lu had pledged nearly all of their Grindr stock for personal loans. Their lender seized some shares and sold them last week after the loans became undercollateralized following the stock’s recent slide.

Max Knoblauch

US airlines take off as oil prices sink amid trade tensions between the US and China

Oil prices are falling on Tuesday as trade tensions between the US and China ripple across markets, with the International Energy Agency warning of a large supply glut that could last into next year. Crude oil contracts were trading at a five-month low on Tuesday.

But what’s bad for crude is good for airlines, which stand to benefit from lower fuel costs. Shares of US carriers including JetBlue, Delta Air Lines, United Airlines, and Southwest’s were all up at least 4% on Tuesday afternoon.

markets
Max Knoblauch

Roblox rallies on a Jefferies price target hike and positive sentiments from Morgan Stanley

Gaming platform Roblox is in the green on Tuesday, following a price target hike from Jefferies to $130 from $126. That target is about 5% below where Roblox is currently trading.

Meanwhile, Morgan Stanley maintained its higher $170 target on the company — one of gaming’s biggest “black holes.” Morgan Stanley called Roblox a clear leader in next-gen entertainment, with parallels to YouTube given its strong position in user-generated content.

In recent months, Roblox has seen booming player counts through updates and events in its most popular titles, including “Grow a Garden” and “Steal a Brainrot.” According to third-party tracking firm RoMonitor, “Steal a Brainrot” had more than 25 million concurrent players on Saturday, when a Halloween update was added to the game.

markets
Matt Phillips

Data center stocks knocked back amid China stress

The buy-everything-data-center-related trade is having a rough ride Tuesday, with Goldman Sachs’ themed basket of AI data center stocks dropping 1.5% in early trading after soaring more than 3.5% to start the week.

That’s partially because some suppliers of bits and bobs needed to fit out the hangar-like concrete structures selling computing power for AI are still exposed to risks of the China-US trade war, which seems to be flaring anew.

For instance, while most of the switches and routers Arista Networks sells are made in Malaysia, Vietnam, and Mexico, it also gets some products directly from China. The company is also reliant on supplies of some critical metals, exports of which China is clamping down on.

Such actions, the company has previously warned, could lead to disruptions to supplies of components it needs, manufacturing delays, and inventory shortages.

Other related stocks slumped in early trading, including hard disk data storage makers Seagate Technology Holdings and Western Digital — also exposed to Asian supply chains — and server maker Dell.

Chip giants Nvidia and Broadcom were also down more than 3% each after Advanced Micro Devices announced a new deal to deploy its chips in Oracle data centers.

While previous announcements to that effect lifted the AI sector as a whole, the AMD deal wasn’t enough offset the pall cast by the renewed China stress.

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