Amazon follows Microsoft's lead in scaling back ambitious plans for AI data centers

Amazon halts AI data centers in Europe. Concerns rise over cooling AI demand.

: Amazon has paused its negotiations on certain international AI data center projects, mirroring similar actions by Microsoft. Reports from Wells Fargo and TD Cowen highlight this pause primarily impacted co-location data center deals in Europe. Factors contributing to this retreat include challenges in utilizing AI technology effectively and potential repercussions from Trump's trade war, which has negatively impacted Amazon's stock and the AI sector overall. Looking forward, the e-commerce giant's upcoming earnings report, alongside Microsoft's $80 billion infrastructure spending plan, will be closely monitored for further insights.

Amazon, like Microsoft, is stepping back from some previously planned AI data center projects globally, particularly in Europe. This retrenchment is illustrated by two leading banks, Wells Fargo and TD Cowen, noting how the tech giant has paused negotiations relating to co-location data center deals. Co-location involves sharing large infrastructure endeavours with other companies. Many speculate the move is due to both companies assessing current aggressive commitments, particularly as Amazon already manages 9 GWs of active power capacity. Microsoft, facing similar challenges, has pulled back a significant $1 billion data center project in Ohio.

The retreat of these two tech giants underscores a broader concern that enthusiasm for AI infrastructure may be waning across the industry. The existing struggles stem from businesses finding it difficult to extract real value and cost savings from AI. Compounding this challenge is the instability caused by President Trump's ongoing trade war, which is having a substantial impact on stocks, including a notable 24% decline in Amazon this year. The company's dependency on goods from China makes it especially vulnerable to the current tensions, affecting the potential for an AI boom with suppliers like Nvidia caught in the geopolitical crossfire.

Nvidia, a leading chip supplier, may find itself facing a downturn if Amazon, a significant client, reduces further investment in new data centers. This situation poses additional challenges for Nvidia which is under scrutiny for its chips potentially bypassing sanctions and entering the Chinese market. Speculation abounds regarding how AI demand will unfold, with both business and economic environments clouding future growth forecasts.

Microsoft CEO Satya Nadella has addressed these challenges, tempering expectations for AI's impact on the U.S. economy thus far. Despite scaling back new ventures, the CEO confirmed the company's long-term investment plans, pledging $80 billion for future infrastructure projects. This recalibration of expectations may reflect the current climate of adjusting growth predictions, even as the public is reassured of ongoing support and development initiatives.

These changes also have implications for local communities. In Ohio, for instance, axing the anticipated data center means relief from potential increases in public taxes necessary to support such ambitious infrastructure projects but also a loss of jobs typically generated during initial rollout phases. Some hope remains that heightened demand for data centers could still drive needed upgrades to local infrastructure and energy sectors, albeit only in specific high-demand regions.

Sources: Bloomberg, Wells Fargo, TD Cowen

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