Microsoft cancels datacentre investments over AI growth concerns, report

Signs of over-commitment amid excitement about AI

Fresh from questioning whether AI will provide all the economic benefits it is expected to deliver over the next five years, Microsoft CEO Satya Nadella is now pulling the company back on a number of datacentre investments.

That’s according to investment bank TD Cowen. Its sources indicate that Microsoft has cancelled leases amount to “a couple of hundred megawatts with at least two private datacentre operators”, pulled back on completing a number of others, and re-allocated datacentre spending from international markets to the US.

These and other factors, the investment bank suggests, indicates “a material slowdown in international leasing” for datacentre space after a two-and-a-half year boom.

While the picture is far from clear at the moment, the investment bank suggests that Microsoft recognises that it is potentially in an oversupply position and is therefore walking back on commitments at various levels of completion.

“We learned via our channel checks that Microsoft: One, walked away from multiple 100MW deals in multiple markets that were in early or mid-stages of negotiations. Two, let more than a gigawatt of letter of intent on larger footprint sites expire. And, three, walked away from at least five land parcels that it had under contract in multiple tier one markets,” the investment bank explained in its TD Cowen Insight note.

The investment bank points out that Microsoft was one of the first to start throwing money after datacentre space in earnest following the success of ChatGPT on launch in November 2022. That had highlighted how AI might have reached a sufficient level of maturity to go mainstream, and Microsoft was quick to conclude a tie-up with OpenAI, the organisation behind ChatGPT.

However, the development of AI, not to mention the training and running of AI apps, requires an immense amount of data and compute power that can only be supplied by datacentres largely running GPU-based servers, which account for half the cost of datacentre ownership where deployed due to their high cost.

It also requires a re-tooling for datacentre halls to support the higher power densities of such servers, including electro-mechanical infrastructure, cooling, backup and so on. And it raises still higher the issue of datacentre power consumption, with places like Dublin, Ireland having already imposed moratoriums on new datacentre builds over the issue.

According to TD Cowen, Microsoft has been using delays in provisioning for power as justification for termination in some cases.

It comes as there are increasing questions over whether major technology firms and independent datacentre operators have not over-committed in their new datacentre investments after wild predictions were made over the economic potential of AI.