We have argued recently that AI will become commoditised and cannot justify the resources devoted to it in terms of profitability. Here is early proof:
Microsoft Pulls Back on Data Centers From Chicago to Jakarta
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Microsoft has halted or delayed data center projects in several locations, including Indonesia, the UK, Australia, Illinois, North Dakota, and Wisconsin.
Summary by Bloomberg AIThe company's pullback on data center projects has raised concerns about demand for AI services and has weighed on global tech stocks, particularly chipmakers like Nvidia.
Summary by Bloomberg AIMicrosoft has acknowledged making changes to its data center plans, citing the need for flexibility in its strategy, but has not provided details on the specific projects affected.
Summary by Bloomberg AI
Microsoft Corp. has pulled back on data center 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.
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 center 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 suck up a significant share of data center budgets. Shares of Microsoft are down about 9% this year.
Microsoft acknowledged making changes to its data center plans but declined to discuss most of the projects.
“We plan our data center capacity needs years in advance to ensure we have sufficient infrastructure in the right places,” a spokesperson said. “As AI demand continues to grow, and our data center presence continues to expand, the changes we have made demonstrates the flexibility of our strategy.”
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, according to people familiar with the talks, who requested anonymity to discuss a private matter.
The company has also halted negotiations for data center space at a site near Chicago, according to a person familiar with the talks.
Microsoft, which has leased excess cloud-computing capacity from CoreWeave Inc., recently backed away from a proposal to obtain more, CoreWeave Chief Executive Officer Michael Intrator said in an interview. Intrator didn’t say how many projects were affected or where they’re located but added that CoreWeave has found another buyer for the capacity.
In some cases, Microsoft is delaying construction. For example, it has paused work on parts of a data center campus it owns about an hour outside of Jakarta, according to people familiar with the situation.
Microsoft also has put on hold some planned expansion at a site in Mount Pleasant, Wisconsin, part of a complex visited by then-President Joe Biden, according to another person.
During the first six months developing the Wisconsin project, Microsoft spent $262 million on construction, according to documents seen by Bloomberg. Almost $40 million of that went to concrete alone.
In other cases, Microsoft has slow-walked negotiations. On a January earnings call, Applied Digital Corp. Chief Executive Officer Wes Cummins told investors that it had been a long process to secure a tenant for a server farm complex in North Dakota. The data center company had originally been in discussions with Microsoft, but talks dragged on so long that an exclusivity clause lapsed, said people familiar with the matter.
Applied Digital has since entered into advanced discussions with other players to lease the site. The company secured extra funding from Macquarie Asset Management to continue developing the project and expects it to come online within the next year.
“Over the past year, we’ve learned that the hyperscaler contract process is extremely thorough,” Cummins said during the January earnings call. The company declined to comment.
In London, Microsoft was negotiating to lease space at Ada Infrastructure’s 210-megawatt Docklands data center but has held off on committing to the project, according to people familiar with the matter. The developer is currently showing the site, located a few kilometers down the river from the Canary Wharf financial center, to other potential tenants, the people said. Parent company Ares Management Corp. declined to comment.
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