Microsoft's Huge Plans for Mass AI Data Centers Now Rapidly Falling Apart

In yet another sign that tech giant Microsoft is getting cold feet about overinvesting in AI infrastructure, the company has abruptly paused work on data centers in Ohio.

As Bloomberg reports, the decision came to the surprise of officials who had agreed to develop a site near the city of Heath just two months prior.

In late March, Microsoft told them it would be stopping the project, in addition to two other halted site developments in two nearby cities in the state. One of the projects outside of Columbus was valued at $1 billion, according to CBS News.

It's the latest indication that Microsoft is looking to pull back as the AI industry continues to pour billions into building out infrastructure. Earlier this month, Bloomberg found that the software company had halted and delayed the development of data centers in Indonesia, the UK, Australia, Illinois, North Dakota, and Wisconsin.

Investment bank TD Cowen also told the publication in February that Microsoft had canceled some leases for US data center power capacity, totaling a "couple of hundred megawatts."

While Microsoft's exact reasoning for the scaling back remains unclear, waning demand and fears of a growing AI bubble are easy culprits.

Case in point, Microsoft CEO Satya Nadella admitted during a podcast appearance in February that generative AI simply hasn't generated much value so far, hinting at the possibility that the supply side could be vastly outstripping demand for the tech.

Meanwhile, Microsoft's competitors at OpenAI, Meta, and Google continue to pour tens of billions of dollars into AI data center infrastructure projects.

In Microsoft's case, there may be another explanation, as Bloomberg points out: the move could be tied to changes in its relationship with partner OpenAI.

In February, Microsoft allowed OpenAI to buy computing from rival cloud services, news that coincided with Trump's announcement of a $500 billion joint venture to build cloud computing data centers dubbed Stargate.

"OpenAI was moving in one direction" by prioritizing advanced and hardware-intensive AI systems, while "Microsoft may not have been moving in that same direction," B. Riley Securities director of research Craig Ellis told CBS.

Microsoft could also simply be readjusting its approach to building out infrastructure.

"Datacenter planning is a multi-year and capital-intensive program we plan for years in advance to ensure we have sufficient infrastructure in the right places," Microsoft cloud operations president Noelle Walsh suggested in a LinkedIn post earlier this month.

"By nature, any significant new endeavor at this size and scale requires agility and refinement as we learn and grow with our customers," she added. "What this means is that we are slowing or pausing some early-stage projects."

Microsoft is still committed to spending a whopping $80 billion globally to expand its AI infrastructure this year.

"While we may strategically pace our plans, we will continue to grow strongly and allocate investments that stay aligned with business priorities and customer demand," Walsh wrote.

Meanwhile, Heath mayor Mark Johns told Bloomberg that he hasn't given up on Microsoft living up to its promises to invest in the area.

"They have not given any indication that these projects are dead and gone," he said. "What they’ve told us is they’re basically paused."

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