Tech Giant Amazon Scales Back Ambitious AI Data Center Projects, Aligning with Microsoft's Move
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The count of tech titans hitting the brakes on their AI data center developments has inched up to two, as per banking institutions Wells Fargo and TD Cowen. Reports indicate that Amazon has put the brakes on some co-location data center negotiations, primarily in Europe. This news follows numerous reports suggesting Microsoft has paused or scrapped some of its plans.
"It's unclear the extent of the break," a Wells Fargo report states, "but the reasoning mirrors what we've recently heard from Microsoft - they're assessing their aggressive recent lease-ups." The report further emphasizes that Amazon seems intent on going through with deals already signed. Co-location refers to the practice of sharing massive infrastructure costs by building data centers in collaboration with other companies needing it.
It's essential to remember that other companies, such as Meta and xAI, continue to push forward with constructing data centers to fuel their AI models. Building out large-scale data centers is a power-intensive process, placing a burden on power grids. Amazon may require additional time to launch data centers already under construction, as per the Wells Fargo report. The firm already holds 9 GWs (gigawatts) of active power capacity in its existing data center infrastructure.
The news adds fuel to concerns that the demand for AI infrastructure might be cooling, as businesses still grapple with finding practical ways to make the most of the new technology to save time and money. Unfortunately, President Trump's trade war is causing stocks to plummet. Amazon has dropped 24% this year, and the company is exposed to tariffs on China, with estimates suggesting more than 70% of goods on its marketplace originate from China.
Kevin Miller, a vice president of global data centers at Amazon Web Services, published a LinkedIn post in response to the Wells Fargo report. He stated that Amazon is considering various options, and that it routinely changes plans on where to set up new server infrastructure based on evolving needs.
Economists worry that the trade war and potential recession could dampen the AI wave, as major players, including Nvidia, are caught in the crossfire. That company relies heavily on China for its business and is under scrutiny for potentially ignoring high-end chips evading sanctions and making their way to China. If Amazon cuts back on new data center investments, that could further harm Nvidia's sales of chips.
Amazon is scheduled to report its next earnings on May 1st, and there will be keen eyes on how AI demand looks. Both Microsoft and Amazon will have an incentive to present an optimistic outlook given their significant investments in AI infrastructure. However, Microsoft recently abandoned a $1 billion data center project in Ohio, surprising local officials who had offered the company attractive tax incentives to secure the deal despite concerns about the project's low employment count and high energy and water resource requirements.
OpenAI has claimed that ChatGPT has over 400 million weekly active users, but many AI products today fall short of the hype they generate online. User or revenue numbers might not be sustainable if the products fail to meet expectations. Microsoft Copilot, designed for enterprises, has been disparaged for not offering much value for the additional cost and resources required to make it functional on internal systems.
If there's a silver lining, it's that locals won't have to pay as much in taxes to support upgrades that have been cancelled. On the downside, these cancellations mean fewer construction jobs initially, and there had been hope that the demands of data centers might finally push local municipalities to upgrade aging infrastructure and roll out clean energy. The hopes of AI providing something of immediate practical value, aside from chatbots that still get things wrong quite often or Palantir-based surveillance systems, have been tempered.
Insights from Enrichment Data:As economic uncertainty, tariffs, and a reevaluation of AI infrastructure demand take hold, major tech companies like Amazon and Microsoft are pausing or canceling their co-location data center plans selectively. This change in strategy could lead to a more balanced, location-optimized build-out phase, rather than rapid, broad expansions. The long-term growth of AI infrastructure remains a priority for tech giants, despite the current pause in expansion.
- In light of the ongoing pauses in AI data center developments by tech giants like Amazon and Microsoft, there might be a shift towards more balanced and location-optimized building-out phases in the future of data-and-cloud computing.
- Gizmodo might highlight how the current apprehension in AI infrastructure expansion could affect the future development of artificial-intelligence technology and its associated technology, such as data centers.
- As tech titans reevaluate their aggressive AI infrastructure investments, companies dealing with artificial-intelligence, like Meta and xAI, may navigate the future technology landscape differently, potentially focusing on improved efficiency and reduced power consumption.
