Microsoft scales back global data centre expansion amid AI spending shifts
Investors are questioning whether Microsoft's investments in server farms are justified given the projected purchases of AI services. Signs of retrenchment have caused concern among some investors. The uncertainty surrounding the demand for AI services may impact Microsoft's future investments in server infrastructure. The company's strategy in the AI market is being scrutinized by investors. Microsoft's financial decisions in this area are being closely monitored.
Microsoft Corp. has pulled back on data centre projects around the world, suggesting the company is taking a harder look at its plans to build the server farms powering artificial intelligence and the cloud. The software company has recently halted talks for, or delayed development of, sites in Indonesia, the UK, Australia, Illinois, North Dakota and Wisconsin, according to people familiar with the situation.
Concerns and Impact
Microsoft is widely seen as a leader in commercializing AI services, largely thanks to its close partnership with OpenAI. Investors closely track Microsoft’s spending plans to get a sense of long-term customer demand for cloud and AI services. It’s hard to know how much of the company’s data centre pullback reflects expectations of diminished demand versus temporary construction challenges, such as shortages of power and building materials.
Some investors have interpreted signs of retrenchment as an indication that projected purchases of AI services don’t justify Microsoft’s massive outlays on server farms. Those concerns have weighed on global tech stocks in recent weeks, particularly chipmakers like Nvidia Corp., which consume a significant share of data centre budgets. Shares of Microsoft are down about 9% this year.
Microsoft's Response
Microsoft acknowledged making changes to its data centre plans but declined to discuss most of the projects. A spokesperson said, “We plan our data centre capacity needs years in advance to ensure we have sufficient infrastructure in the right places. As AI demand continues to grow, and our data centre presence continues to expand, the changes we have made demonstrate the flexibility of our strategy.”
Specific Cases
Microsoft recently withdrew from negotiations to lease space between London and Cambridge in the UK at a site being marketed for its ability to host advanced Nvidia chips. The company has also halted negotiations for data centre space at a site near Chicago.
Microsoft has slowed down negotiations and construction in various locations. For example, work on parts of a data centre campus near Jakarta has been paused. Additionally, expansion plans at a site in Mount Pleasant, Wisconsin, have been put on hold.
Industry Analysis
In the industry, concerns are rising about potential oversupply of data centres relative to current demand forecasts for AI services. Analysts have noted shifts in Microsoft's strategy, including abandoning new data centre projects in the US and Europe, likely due to data centre oversupply and changes in partnerships, such as with OpenAI.
Overall, the industry is witnessing adjustments in server farm plans by cloud companies to cut costs and prioritize projects that can be completed more quickly to adapt to the evolving market dynamics.