Microsoft once helped to foster a craze for "new cloud" services. In order to meet the huge market demand for its cloud services and AI services, the company signed contracts worth billions of dollars with emerging data center operators.
Nowadays, as new cloud companies face project delays, regulatory obstacles, and high costs, some of Microsoft's key executives are feeling regret.
Insiders revealed that Microsoft is strengthening supervision over some data center projects involving Nebius Group NV, IREN Ltd, and Nscale Plc. The company is withdrawing from projects that are considered to carry higher risks and is also discussing internally whether to sign any new cloud deals.
This friction was evident during Microsoft's most recent financial report conference call. At that time, Chief Financial Officer Amy Hood stated that delays in the delivery of some third-party computing power were disrupting the company's spending plans. This is already the third time she has pointed out such issues during a financial report conference call.
According to people familiar with the matter, some recent issues involve the wiring of a project developed by IREN in Texas. The data center servers are interconnected through a complex fiber optic network.
In April of that same year, there was also an incident where a generator caught fire in the park. In August, IREN disclosed that there were delays in hardware delivery in the area.
According to informed sources, IREN and Microsoft executives held talks last week and agreed on a new schedule that may result in a delay of several weeks or even months in the completion of the project.
A Microsoft spokesperson stated that the company will manage its relationships with infrastructure partners based on "its own and customer needs," including monitoring delivery progress and adjusting plans when circumstances change. "These are normal and responsible practices for managing large, complex infrastructure projects, and they help us to bring computing power online reliably and efficiently."
For New Cloud Company, this is a dangerous moment. The rise of such enterprises stems from a shortage of computing power; they are accelerating the deployment of artificial intelligence infrastructure, including NVIDIA chips, to meet customer demands.
Industry research firm Gartner Inc recently estimated that by the end of 2030, 80% of new cloud service providers may be integrated or shut down. Musk has made a similarly pessimistic assessment. Musk stated that many new cloud companies are likely to be eliminated like “small fish” because they struggle to raise sufficient funds to sustain their operations.
The victories of several Democratic governor candidates this week have further exacerbated these concerns. All of these candidates made strengthening data center regulation a key issue in their campaigns. In particular, Gina Hinojosa, the incoming governor of Texas, called for an immediate suspension of data center development until a more comprehensive regulatory system is established.
Microsoft was one of the most important early investors in this emerging industry, providing substantial contracts to companies such as CoreWeave Inc and Nscale, enabling them to grow rapidly. Despite having its own vast data center network, Microsoft was still willing to pay a high price to purchase external computing power in order to meet demands that it could not handle on its own.
Every week, Microsoft's Chief Financial Officer Hood hosts a meeting regarding computing power, discussing when the computing power will be available, where it will come from, and which departments within the company it will be allocated to. According to informed individuals who have attended these meetings, a frequently discussed topic is whether the timeline of the new cloud company is credible, and what measures Microsoft can take to accelerate the project progress.
Microsoft is increasingly sending personnel to directly oversee project sites. According to recruitment information and people familiar with the matter, in recent months, the company has sent employees to the project locations of New Cloud Company to ensure that the facilities are built in accordance with Microsoft's specifications and meet regulatory requirements. For example, Microsoft has sent employees to a project located at Nebius in New Jersey; in addition, personnel have also been dispatched to projects at Nscale and IREN in Texas.
In other cases, Microsoft simply withdrew from projects that it deemed unfeasible, including several projects related to Nscale. Microsoft refused to expand its cooperation with Nscale in Texas, and some of that computing power was later taken over by Figure AI. Microsoft also withdrew from a letter of intent and no longer planned to rent 1.35 gigawatts of computing power from Nscale in West Virginia.
According to people who have spoken with senior Microsoft executives, the company's current focus is on expanding its own data centers rather than adding new cloud transactions. Microsoft has not completely ruled out the possibility of signing new deals, but several company executives have expressed strong reservations about this.
Over the past year, Microsoft has made new commitments for data center leasing worth over $200 billion. A company spokesperson stated that part of this includes new cloud computing power. Bloomberg previously reported that all of these expenditures are intended to be used to significantly expand Microsoft's own server park capacity in the coming years.
Purchasing third-party computing power has always been a controversial topic within Microsoft. Executives are concerned that even outsourcing only a portion of the business could help potential competitors grow and strengthen. They are also worried that due to the limited experience of new cloud companies in building and operating server parks, Microsoft may face higher costs and implementation risks as a result.
Responsible Editor: Ding Wenwu
