TMTPOST -- Microsoft Corporation again was rumored to pull back its data center project and this time, the company seems to step up its shift, raising more fears about the artificial intelligence (AI) bubble.
Credit：Microsoft
Microsoft has scaled back on data center constructions around the world, from the U.S., United Kingdom, Australia to Indonesia, according to a Bloomberg report on Thursday, which signaled the software heavyweight is wary of too rapid expansion of its cloud computing infrastructure.
In U.S., the company was said to have halted negotiations for data center space at a site near Chicago. It was 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, the report cited a person familiar with the matter.
In the UK, Microsoft recently withdrew from negotiations to lease space between London and Cambridge at a site being marketed for its ability to host advanced chips from Nvidia Corporation, the report quote anonymous sources familiar with the talks. The company was negotiating to lease space at Ada Infrastructure's 210-megawatt Docklands data center in London, but has held off on committing to the project, according to the report.
Microsoft is reportedly delaying construction of data centers. It has paused work on parts of a data center campus it owns about an hour outside of Jakarta, per the sources. Though the report noted the delays in Jakarta and Mount Pleasant could result from construction issues.
A Microsoft spokesperson told the publication that the company makes its plans of required data center capacity years in advance to ensure sufficient infrastructure in the right places. “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,” the spokesperson said.
TD Cowen in February has already released a report that triggered fears on the sustainability of Microsoft’s mounting AI bills. Microsoft has canceled leases in the U.S> totaling “a couple of hundred” Megawatts (MW) of capacity with at least two private data center operators, Michael Elias and other TD Cowen analysts cited channel checks in a note on February 24. “When coupled with our prior channel checks, it points to a potential oversupply position for MSFT,” Elias said.
The analysts also stated Microsoft has pulled back on the conversion of SOQs, or statement of qualifications, to leases and re-allocated a considerable portion of its international spending to the U.S. SOQ is typically the precursor to signing a data center lease.
“While we have yet to get the level of color via our channel checks that we would like into why this is occurring, our initial reaction is that this is tied to Microsoft potentially being in an oversupply position,” the analysts wrote.
TD Cowen analysts last week updated their report, estimating Microsoft has withdrawn data center project totaling more than 2 gigawatts (GWs), or 2 billion watts, of capacity in half a year, based on their channel checks at Nvidia Corporation’s annual GTC conference and the industry event Data Connect in New York in March.
Given the lease cancellations and leases being terminated in both the U.S. and Europe that TD Cowen’s channel checks indicated, “Microsoft has both (1) walked away from +2GW of capacity in both the U.S. and Europe in the last six months that was in process to be leased, and (2) has both deferred and canceled existing data center leases in both the U.S. and Europe in the last month,” said these analysts in their note on March 26.
TD Cowen analysts believed the lease cancellations and deferrals of capacity points to data center oversupply relative to Microsoft’s current demand forecast, though the pullback of new capacity was largely driven by the decision to not support incremental Open AI training workloads. More pervasive lease cancellations or deferrals by Microsoft created an opportunity for both Google and Meta to backfill capacity, the analysts noted.
Microsoft said later March 26 that it “may strategically pace or adjust our infrastructure in some areas”, but will continue to “grow strongly in all regions.” The company added its plans to spend over $80 Billion on AI infrastructure this fiscal year is still on track and spending beyond the year would begin to slow down.
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