Did the AI bubble really just pop before our eyes?
Microsoft is taking a step back from its big AI data center buildout, abandoning new datacenter projects in the US and Europe that would have utilized about 2 gigawatts of electricity, TD Cowen analysts wrote in a note today.
It wasn’t just the news that startled investors, but the reasoning. “We continue to believe the lease cancellations and deferrals of capacity points to data center oversupply relative to its current demand forecast,” the TD Cowen analysts wrote—indicating that maybe big tech doesn’t really need hundreds of billions worth of data centers after all.
Back in February, TD Cowen pointed out that Microsoft had abandoned a few data center leases in the US as the big tech giant reworked its relationship with AI startup OpenAI. Bloomberg reported today that Microsoft still plans to invest $80 billion in AI hardware this year.
Any stocks involved in the AI trade plummeted on the news. Companies tied to the data center industry took a particular beating: Vertiv Holdings sank 10.79%, Broadcom dropped 4.78%, Super Micro Computer fell 8.86%, and Arista Networks declined 6.07%.
Magnificent spending
Investors have been increasingly scrutinizing big tech’s spending on AI infrastructure like servers and data centers, demanding some solid returns for these major investments—especially after Chinese startup DeepSeek proved that its AI model measured up to ChatGPT with only a tiny fraction of its price tag.
Earlier this week, Alibaba Chairman Joe Tsai called out US big tech for creating an AI bubble, saying that “People are investing ahead of the demand we’re seeing today.”
And today’s news seemed to confirm investors’ worst fears: All that spending might be superfluous.
Microsoft isn’t the only company that has raised investors’ eyebrows with its plans to spend big. Meta Platforms has committed to spending $65 billion on AI hardware this year, while Alphabet projects it will spend $75 billion. Both companies have already swooped in to take over some of Microsoft’s abandoned leases, TD Cowen said.
Seems like big tech names still see big demand, even if investors are getting nervous.—LB
Making sense of market moves
Stay up to date on the latest market news with daily analysis of the investing landscape, served up Brew-style.