A potential ‘oversupply position’
In a new research note, TD Cowan analysts reportedly said that Microsoft has walked away from new data center projects in the US and Europe, purportedly due to an oversupply of compute clusters that power AI.
This follows reports from TD Cowen in February that Microsoft had “cancelled leases in the US totaling a couple of hundred megawatts” of data center capacity. The researchers noted that the company’s pullback was a sign of it “potentially being in an oversupply position,” with demand forecasts lowered.
OpenAI, for its part, has reportedly discussed purchasing billions of dollars’ worth of data storage hardware and software to increase its computing power and decrease its reliance on hyperscalers. This fits with its planned Stargate Project, a $500 billion, US President Donald Trump-endorsed initiative to build out its AI infrastructure in the US over the next four years.
Based on the easing of exclusivity between the two companies, analysts say these moves aren’t surprising.
“When looking at storage in the cloud — especially as it relates to use in AI — it is incredibly expensive,” said Matt Kimball, VP and principal analyst for data center compute and storage at Moor Insights & Strategy.
“Those expenses climb even higher as the volume of storage and movement of data grows,” he pointed out. “It is only smart for any business to perform a cost analysis of whether storage is better managed in the cloud or on-prem, and moving forward in a direction that delivers the best performance, best security, and best operational efficiency at the lowest cost.”