Nadella: “I feel very, very good” about the pace of Microsoft’s data center plans
Microsoft plans an increase in capital expenditures for AI, but say it’s being careful not to get “upside down” on demand.
Yesterday Microsoft delivered a blowout earnings report, beating expectations fueled by strong demand for AI on its Azure cloud computing services. Investors were quite happy, with the stock up over 9% in early trading today.
On the earnings call, everyone was eager to hear more about Microsoft’s capex plans.
Year on year, capital expenditures were up 52% to $16.2 billion for the quarter. But what about the recent reports of Microsoft pulling back on data center construction?
On an earnings call with analysts yesterday, CEO Satya Nadella led with an update on infrastructure:
“We continue to expand our data center capacity. This quarter alone, we opened DCs in 10 countries across four continents. Model capabilities are doubling in performance every six months, thanks to multiple compounding scaling laws.”
Basically, it’s a complicated moment that AI infrastructure builders face now.
All of the buildings, servers, networking, and energy hardware that are allocated for data centers today will be running models that will have already jumped ahead in capabilities and efficiencies — the field is moving really fast, and building huge data centers is comparatively really slow.
In response to an analyst’s question about the reports of a pullback, Nadella said:
“The reality is we’ve always been making adjustments to build, lease, what pace we build all through the last whatever 10, 15 years. It’s just that you all pay a lot more attention to what we do quarter over quarter nowadays.”
Nadella emphasized that they did not want to find themselves in a situation where they overshot demand.
“You don’t want to be upside down on having one big data center in one region when you have a global demand footprint. You don’t want to be upside down when the shape of demand changes.”
Overall, Nadella expressed confidence in the company’s capex plans, which are expected to increase next quarter. Nadella said, “I feel very, very good about the pace.”
And so far today, investors do too.
