Tech giant Amazon scraps expansive AI data center project, mirroring Microsoft's move
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The number of tech titans giving a cold shoulder to their AI data center plans is climbing to a duo. According to financial heavyweights Wells Fargo and TD Cowen, Amazon has hit the brakes on some co-location data center negotiations, primarily in Europe. This revelation follows reports of Microsoft taking a similar approach.
"The extent of the break isn't clear," a Wells Fargo report notes, "but the approach is reminiscent of what we've recently heard from MSFT – they're assessing their aggressive recent expansion deals." The report further highlights that Amazon seems determined to follow through with agreements already sealed. Co-location is the idea of sharing mammoth infrastructure costs by constructing data centers collaboratively with other companies needing it.
Keep in mind that other players, such as Meta and xAI, are still pushing ahead with data center construction to fuel their AI models. Constructing large-scale data centers consumes substantial energy, which grids frequently grapple with supplying. Amazon might require more time to complete data centers already under construction. The Wells Fargo report indicates that the e-commerce powerhouse already has approximately 9 gigawatts (GWs) of active power capacity in its existing data center fleet.
The news lends credence to concerns that the AI infrastructure demand is waning, as businesses grapple with finding practical uses for the new technology to save time and expenses. It's not helping that the ongoing trade dispute initiated by President Trump is sending stocks spiraling. Amazon has endured a 24% dip this year, and the company is vulnerable to tariffs on China, with estimates suggesting more than 70% of goods on its platform hail from the country.
Kevin Miller, a vice president of global data centers at Amazon Web Services, responded to the Wells Fargo report with a LinkedIn post, asserting that Amazon is mulling numerous options and frequently alters its plans on where to build new server infrastructure based on evolving needs.
Economists worry the trade war and potential recession could halt the AI surge as key players, like Nvidia, are caught in the crossfire. This firm derives a substantial portion of its business from China and is under scrutiny for potentially ignoring high-end chips evading sanctions and winding up in China. If Amazon scales back its investment in new data centers, it could further harm Nvidia's sales of chips.
Amazon releases its next earnings report on May 1st, and there will be keen eyes tracking AI demand. With big tech pouring heavy investments into AI infrastructure, they are motivated to maintain an optimistic outlook. However, Microsoft recently abandoned an ambitious $1 billion data center project in Ohio, surprising officials who had extended generous tax incentives to attract the project. Despite concerns about job creation and energy requirements, Microsoft also passed on leasing more capacity from CoreWeave, a newly public provider of AI-centric data centers.
CEO Satya Nadella has attempted to manage expectations surrounding the AI revolution, stating in a recent interview that the technology has yet to become a significant boost for the US economy, though his company has reaffirmed plans to spend $80 billion on infrastructure in the coming years.
OpenAI claims ChatGPT boasts over 400 million weekly active users, but many AI products today fall short of the excitement drummed up online. These products could struggle to be financially viable if they fail to live up to expectations. Microsoft's Copilot, marketed for the enterprise, has faced ridicule for delivering minimal value for the additional cost and resources needed to implement it within internal systems.
On the bright side, locals may not have to shell out as much in taxes to support canceled updates. On the flip side, these developments employ a significant number of construction workers during the initial rollout, and there was some expectation that data center demands would finally prompt local municipalities to upgrade run-down infrastructure and establish clean energy sources. The AI boost was poised to deliver something tangible, if not chatbots that still trip up on basic tasks, or Palantir-inspired surveillance systems.
- Despite Microsoft and Amazon's potential scaling back on data center investment, other tech giants like Meta and xAI are still pushing for data center construction to power their AI models.
- The recent pause in AI data center plans by tech titans like Amazon and Microsoft could impact firms like Nvidia, which relies heavily on China for business and supplies chips to these companies.
- As Amazon and Microsoft reconsider their AI infrastructure investments, the upcoming earnings report on May 1st will be closely watched for signs of waning AI infrastructure demand among big tech companies.
