Tech Giant Amazon Scales Back on Expansive Artificial Intelligence Data Center Ambitions, Mirroring Microsoft's Decision
Tech titans scaling back on their AI data center aspirations isn't just a one-player game anymore. According to financial analyses by Wells Fargo and TD Cowen, Amazon has temporarily halted negotiations for certain co-location data center deals, most notably in Europe. This announcement comes after numerous reports indicating that Microsoft has also put the brakes on some of its data center plans.
As stated in a Wells Fargo report, "The extent of the halt isn't clear yet, but the sentiment appears to be similar to what we've heard from Microsoft—they're assessing current lease-up deals." It's important to note that Amazon remains committed to lines already agreed upon. Co-location refers to the practice of sharing enormous infrastructure costs by building data centers in partnership with other companies that require it.
It's crucial to remember that other companies, like Meta and xAI, continue ramping up their data center construction to fuel their AI models. However, building large-scale data centers requires substantial power that grids often struggle to generate. Amazon might need extra time to open the data centers it's already building. The Wells Fargo report states that Amazon currently boasts 9 GWs (gigawatts) of active power capacity in its existing data center infrastructure.
The news supports apprehension that the demand for AI infrastructure is slipping as businesses grapple with finding practical uses for the technology. This uncertainty is worsened by President Trump's ongoing trade war, which is causing stock prices to plummet. Amazon has dropped 24% this year, and the company is exposed to tariffs on China, with estimates suggesting that more than 70% of goods on its platform originate from China.
In response to the Wells Fargo report, Kevin Miller, a vice president of global data centers at Amazon Web Services, published a LinkedIn post clarifying Amazon's position. He revealed that Amazon is exploring various options, emphasizing that the company regularly reassesses where to build new server infrastructure in response to evolving needs.
Economists worry that the trade war and potential recession could hinder the ongoing AI boom, with key players like Nvidia getting caught in the crossfire. Nvidia receives a significant portion of its business from China and faces scrutiny for potentially ignoring high-end chips circumventing sanctions and entering China. If Amazon scales down investment in new data centers, this could negatively impact Nvidia's sales of chips.
Amazon will report its earnings on May 1st, with investors closely watching AI demand trends. All big tech has poured money into AI infrastructure, so it's in their best interest to sustain an optimistic outlook. However, Microsoft recently abandoned an ambitious $1 billion data center project in Ohio, leaving local officials disappointed as they had offered generous tax incentives to secure the deal despite concerns about the project's requirements for resources and low employment. Microsoft's CEO Satya Nadella has tried to temper AI hype, stating in a recent interview that the technology hasn't yet delivered a significant boost to the U.S. economy, even though the company has committed to investing $80 billion in infrastructure in the near future.
OpenAI claims ChatGPT has more than 400 million weekly active users, but many AI products struggle to meet the hype surrounding them. Revenue or user numbers could suffer if products fail to live up to expectations. Microsoft's Copilot, geared toward enterprise use, has been criticized for lacking significant added value, considering the additional cost and resources required to implement it on internal systems.
A glimmer of good news is that taxpayers in affected areas will not be hit as hard by the cancelled upgrades. On the downside, these cancellations also mean fewer construction jobs and a delay in upgrading local infrastructure and building clean energy resources. There was a glimmer of hope that AI could provide immediate, tangible benefits, such as chatbots that still make quite a few mistakes, or systems like Palantir, which have attracted criticism for their potential use in police state applications.
- Tech giants, such as Amazon and Microsoft, are rethinking their AI data center expansion plans, according to reports and financial analyses by firms like Wells Fargo and TD Cowen.
- Co-location, a practice of sharing infrastructure costs by building data centers in partnership with other companies, remains a priority for some companies like Meta and xAI, despite halts in construction from other industry leaders.
- The slowed down investment in AI infrastructure by tech companies like Amazon could impact companies like Nvidia, which rely heavily on the tech industry and have substantial business in China.
- Tech companies continue to express optimism about AI, but some products, like Microsoft's Copilot, have faced criticism for lacking significant added value and meeting user expectations.
