Microsoft pulls back from more data center leases in US and Europe

Tech Giants’ AI Spending Hike Raises Skepticism

Alphabet has announced it will spend US$75 billion on its AI buildout this year, 29% more than Wall Street expected, while Meta has pledged as much as US$65 billion. However, Microsoft’s decision to abandon data centre projects set to use two gigawatts of electricity in the US and Europe has raised concerns about the slow payoffs and the rise of Chinese startup DeepSeek, which showcased AI technology at a much lower cost than its Western rivals.

Microsoft’s Abandonment of Data Centre Projects

According to TD Cowen analysts, Microsoft has abandoned data centre projects set to use two gigawatts of electricity in the US and Europe in the last six months due to an oversupply relative to its current demand forecast. The tech giant’s withdrawal from new capacity leasing was largely led by the decision not to support additional training workloads from ChatGPT maker OpenAI.

Investor Skepticism

Investor skepticism about the hefty AI spending by US tech firms has increased due to slow payoffs and the rise of Chinese startup DeepSeek, which showcased AI technology at a much lower cost than its Western rivals. TD Cowen’s supply chain checks indicate that Microsoft’s pullback has led to Alphabet’s Google stepping in to backfill the capacity in international markets, while Meta Platforms does the same in the US.

Company Statements

Microsoft, whose shares were down more than 1% on Wednesday, said, "While we may ‘strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions." It added that its plans to spend US$80 billion on AI infrastructure this fiscal year are on track.

Conclusion

The recent developments in the AI sector have raised concerns about the slow payoffs and the rise of Chinese startup DeepSeek, which has showcased AI technology at a much lower cost than its Western rivals. While Alphabet and Meta have pledged significant funds to their AI buildouts, Microsoft’s abandonment of data centre projects has led to investor skepticism about the hefty AI spending by US tech firms.

FAQs

Q: What is the total amount Alphabet plans to spend on its AI buildout this year?
A: Alphabet plans to spend US$75 billion on its AI buildout this year.

Q: What is the total amount Meta plans to spend on its AI buildout this year?
A: Meta plans to spend as much as US$65 billion on its AI buildout this year.

Q: Why has Microsoft abandoned its data centre projects?
A: Microsoft has abandoned its data centre projects set to use two gigawatts of electricity in the US and Europe due to an oversupply relative to its current demand forecast.

Q: What is the reason for the rise of Chinese startup DeepSeek?
A: DeepSeek has showcased AI technology at a much lower cost than its Western rivals, leading to concerns about the slow payoffs and the rise of Chinese startup DeepSeek.