Microsoft Faces AI Capacity Constraints Amid Surging Demand and Data Center Adjustments

Microsoft expects some AI capacity constraints this quarter | TechCrunch

Microsoft customers could encounter service disruptions when using AI services due to demand outpacing the company's ability to bring data centers online, an executive warned during the company's earnings call Microsoft's EVP and CFO Amy Hood said during the company's fiscal 2025 third-quarter earnings call Wednesday the company may face AI capacity constraints as early as June because demand is higher than its data centers can handle. "We had hoped to be in balance by the end of Q4 but we did see some increased demand, as you saw through the quarter," Hood said. "So we are going to be a little short, a little tight as we exit the year." The timing of Hood's statement is interesting because Microsoft has reportedly cancelled multiple data center leases this year. In February, investment bank TD Cowen published a memo that Microsoft cancelled multiple data center leases that equated to a "couple hundred megawatts" or the equivalent of two data centers. In the two months since, there have been multiple reports of additional data center lease cancellations. Microsoft says these two instances are not necessarily related. The company reiterated today that it is still committed to investing $80 billion into data centers this year -- as it originally earmarked at the beginning of this year. Half of that figure is for U.S.-based data centers. Hood also added that demand today and demand tomorrow are not the same thing. "Just a reminder, these are very long lead time decisions, from land to build out, it can be, you know, lead times of five to seven years, two to three years," Hood said. "So we're constantly in a balancing position as we watch demand curves." Microsoft CEO Satya Nadella said at the top of the earnings call the company opened data centers across 10 new countries and four new continents during this past quarter.

Satya Nadella Explains Why Microsoft Cancelled Data Centre Projects in US and Europe | AIM

"We continue to expand our datacenter capacity. This quarter alone, we opened DCs in 10 countries across four continents," Nadella said. Microsoft CEO Satya Nadella said the company is evaluating factors such as demand, workload patterns, and location before committing to data centre projects. He made the remarks during the company's earnings call, addressing reports based on a memo by TD Cowen analysts that Microsoft has abandoned data centre projects in the US and Europe that would have used 2 gigawatts of electricity, due to an oversupply relative to its near-term demand forecast. "The key thing for us is to have our builds and leases be positioned for what is the workload growth of the future," Nadella said. He pointed to the evolving nature of AI workloads, distinguishing between traditional training and emerging patterns like pre-training combined with test-time compute. "There's Moore's Law, there's system software, there's model architecture changes, there's the app server efficiency." Nadella also cautioned against concentrating too much infrastructure in any one location. "You don't want to be upside-down on having one big data center in one region, when you have a global demand footprint," he said. Similarly, Microsoft CFO Amy Hood said that these are long-term decisions. "Just a reminder, these are decisions with long lead times, from land acquisition to build-out, it can take five to seven years, or two to three years," Hood said. "So we're constantly in a balancing act as we monitor demand curves." Despite scaling back some leasing activity, Microsoft continues to invest aggressively in its infrastructure. "We continue to expand our datacenter capacity. This quarter alone, we opened DCs in 10 countries across four continents," Nadella said. Microsoft has committed $80 billion in fiscal year 2025 (ending June 2025) on AI-enabled data centres to support AI model training, deployment, and cloud services. The update came alongside Microsoft's earnings for the quarter ended March 31, 2025, in which it reported $70.1 billion in revenue, up 13% year-over-year (15% in constant currency). Net income rose 18% to $25.8 billion, with operating income up 16% to $32.0 billion. Revenue from the Intelligent Cloud segment was $26.8 billion, a 21% increase. This included a 22% rise in server products and cloud services revenue, led by a 33% growth in Azure and other cloud services. "In Azure, we expect Q4 revenue growth to be between 34% and 35% in constant currency driven by strong demand for our portfolio of services," said Hood. "In our AI services, while we continue to bring datacenter capacity online as planned, demand is growing a bit faster. Therefore, we now expect to have some AI capacity constraints beyond June." The company attributed its strong performance to growth in cloud and AI offerings. "Cloud and AI are the essential inputs for every business to expand output, reduce costs, and accelerate growth," Nadella said. "From AI infra and platforms to apps, we are innovating across the stack to deliver for our customers." Microsoft Cloud revenue reached $42.4 billion, up 20%. Nadella also shared that more than 15 million people are now using GitHub Copilot, four times as many as last year.

Microsoft to Continue Building Data Centers as Cloud and AI Lead Growth | PYMNTS.com

Microsoft will continue investing in capital expenditures throughout its fiscal year 2026 after seeing its cloud and artificial intelligence (AI) offerings lead its revenue gains in the third quarter of fiscal year 2025. "These investments, along with focused execution that delivers near-term value to our customers, will ensure we continue to lead through the cloud and AI opportunity ahead," Microsoft Chief Financial Officer Amy Hood said Thursday (April 30) during the company's quarterly earnings call. Microsoft's Intelligent Cloud business led the company's revenue growth during the quarter ended March 31, according to a presentation released Wednesday in conjunction with the call. The Intelligent Cloud business was up 21% year over year, while Productivity and Business Processes was up 10% and More Personal Computing was up 6%. Overall, Microsoft's revenue was up 13% year over year, per the presentation. "Cloud and AI are the essential inputs for every business to expand output, reduce costs and accelerate growth," Microsoft Chairman and CEO Satya Nadella said during the call. During the most recent quarter, the company opened data centers in 10 countries on four continents, Nadella said. He added that model capabilities are doubling in performance every six months and that the company's cost per token has more than halved. Microsoft is introducing AI agents "for every role and business process," Nadella said during the call. He highlighted a Sales Agent that turns contacts into qualified leads, Sales Chat that can get reps up to speed on new accounts and a Customer Service Agent that manages customer inquiries and helps service reps resolve issues faster. "This quarter alone, customers created over 1 million custom agents across SharePoint and Copilot Studio, up 130% quarter over quarter," Nadella added during the call. Looking ahead, Microsoft expects its Intelligent Cloud business to see revenue growth of 20% to 22% in constant currency during the current quarter. (In the quarter ended March 31, it grew 22% in constant currency.) This growth will be driven by its cloud platform Azure. "In our non-AI services, we expect focused execution to continue driving healthy growth," Hood said during the call. "In our AI services, while we continue to bring data center capacity online as planned, demand is growing a bit faster. Therefore, we now expect to have some AI capacity constraints beyond June."

Microsoft Slows Data Centre Leases in Q3FY25 Amid AI Boom

Microsoft is expecting that it is not keeping up with the growing artificial intelligence (AI) demand, Amy Hood, Chief Financial Officer (CFO) at Microsoft, said during the third quarter (Q3FY25) earnings conference call. This could potentially lead to users facing disruption as the company has been bringing its data centre capacity online for AI services. The comments came at a time when Microsoft continues to invest in building "long-lived assets" and servers. This also comes after the company has reportedly pulled back from data centre leases in the US and Europe. Hood said that while Microsoft continues to bring data centre capacity online as planned, the demand for its AI service is "growing a bit faster." Therefore, the company expects to have "some AI capacity constraints." According to the CFO, the company expects these AI capacity constraints to continue "beyond June." To simplify, the company is expecting the demand for its AI services to grow at a faster pace than it is building its capacity for the same. Microsoft spent $21.4 billion in capital expenditures, which was "slightly lower" than what it had expected. Hood said, "Roughly half of our cloud and AI-related spend was on long-lived assets that will support monetisation over the next 15 years and beyond. The remaining cloud and AI spend was primarily for servers, both CPUs and GPUs, to serve customers based on demand signals, including our customer contracted backlog of $315 billion." She added, "I did talk about it in my comments, we had hoped to be in balance by the end of Q4. We did see some increased demand, as you saw through the quarter. We are going to be a little short, still, a little tight as we exit the year, but are encouraged by that." The scale of Microsoft's AI services is also growing, which might lead to more investment in capacity building by the company. To reflect the same, Satya Nadella, Chief Executive Officer of Microsoft, said during the call, "We processed over 100 trillion tokens this quarter, up 5x year-over-year - including a record 50 trillion tokens last month alone. And four months in, over 10,000 organisations have used our new Agent Service to build, deploy, and scale their agents." He also added that the tech giant has expanded its "Phi family of SLMs" or Small Language Models, with new multimodal and mini models. Nadella also revealed that Phi has been downloaded 38 million times. As the company continues to bring data centre capacity online for its AI services, it has also been reportedly shutting down its data centre projects in the US and Europe. In March 2025, Microsoft abandoned data centre projects that were going to use 2GW of electricity in the US and Europe in the last few months because of oversupply in comparison to its demand forecast for the same, according to a Reuters report. The US-based tech company's withdrawal from new capacity leasing of data centres was primarily led by the decision not to support additional training workloads from ChatGPT-developer, OpenAI, cited a note by analysts in the report. In February, TD Cowen analysts said that the tech giant had scrapped leases for data centres with a total capacity of "a couple of hundred megawatts" with at least two private data centre operators, the report added. Hence, while the company tries to grapple with the rising demand on one, it might be scaling down the capacity of its data centres on the other.