Tech Giant Amazon Scales Back Ambitions on AI Data Center Projects, Mirroring Microsoft's Decision
Tech giants, including Amazon, are reconsidering their AI data center expansion plans, according to recent reports. Wells Fargo and TD Cowen have suggested that Amazon has put some co-location data center deals on hold, mainly in Europe. This development comes after similar reports about Microsoft pausing or cancelling certain data center plans.
The scope of Amazon's pause remains unclear, as a Wells Fargo report states, but it appears that the e-commerce giant is managing its capacity strategically. Co-location, a practice of sharing enormous infrastructure costs by partnering with other companies for data center construction, continues to be a popular approach.
Other tech companies, such as Meta and xAI, are still aggressively building out data centers to support their AI models. However, the power requirements for these large-scale data centers strain existing grids, and Amazon might need more time to complete data centers currently under construction. The Wells Fargo report indicates that Amazon already has 9 GWs (gigawatts) of active power capacity in its existing data center infrastructure.
The halt in expansion has fueled concerns about cooling demand for AI infrastructure due to the ongoing struggle of businesses to find practical uses for the technology. Additionally, President Trump's trade war has caused stocks to fall, with Amazon down 24% this year, and the company potentially exposed to tariffs on Chinese goods, with over 70% of products on its marketplace originating from China.
Kevin Miller, a vice president of global data centers at Amazon Web Services, addressed the situation in a LinkedIn post on Monday. He explained that Amazon is considering multiple options, and that the company routinely reassesses its expansion plans based on evolving needs.
Economists worry that the trade war and potential recession could slow down the AI boom, affecting companies like Nvidia, which receives a substantial amount of its business from China and is under scrutiny for potentially ignoring high-end chip export restrictions. If Amazon reduces investment in new data centers, it could impact Nvidia's chip sales.
Amazon will report its next earnings on May 1st, and the attention will be on the state of AI demand. All major tech companies have invested heavily in AI infrastructure, and there is an incentive to maintain an optimistic outlook. However, Microsoft recently halted an ambitious $1 billion data center project in Ohio, surprising local officials who offered generous tax incentives despite concerns about employment and resource consumption.
AI products, despite the hype, often fall short of expectations. Microsoft's enterprise-focused Copilot, for example, has been criticized for failing to deliver significant value for the additional cost and resources required. If there is any positive aspect to this, it may be a reduction in local taxes to support cancelled upgrades. However, these cancellations also mean fewer construction jobs and missed opportunities for local infrastructure improvements. The hopes that AI would provide immediate practical benefits, beyond chatbots with frequent errors or controversial systems like Palantir-based police surveillance, have also been tempered.
- The tech industry is witnessing a reconsideration of artificial-intelligence (AI) data center expansion plans, with tech giants like Amazon and Microsoft reportedly pausing or halting certain projects.
- Co-location, a popular approach in the technology industry, continues to be used by companies to share enormous infrastructure costs, but Amazon's strategic capacity management has caused some uncertainty.
- While other tech companies like Meta and xAI continue to aggressively build out data centers for their AI models, Amazon, with 9 GWs of active power capacity, might need more time to complete data centers currently under construction due to power requirements straining existing grids.
- The halt in expansion by tech companies has fueled concerns about the future of AI infrastructure and its practical uses, especially amid the ongoing trade war, potential recession, and the scrutiny faced by companies like Nvidia for their China-related business.
