While Microsoft did not provide a specific forecast for AI capital spending for the next quarter or the coming year, the company’s chief financial officer, Amy Hood, said the company’s overall spending “will grow sequentially and we currently expect the growth rate in fiscal year 2026 to be higher than in fiscal year 2025.”
Tech companies are making ambitious plans for more capital spending, betting that demand for artificial intelligence will continue to grow. However, some analysts express concerns that the artificial intelligence market is a bubble that will eventually burst.
These concerns are fueled by announcements of extremely high-priced, multi-year data center projects and investments spread over time. Last month, Nvidia said it would invest “up to $100 billion” in OpenAI, provided the ChatGPT developer builds and deploys AI data centers of at least 10 gigawatts using Nvidia chips. Meanwhile, OpenAI said just yesterday that it plans to produce 30 gigawatts of computing resources worth $1.4 trillion.
Microsoft has pledged a total of $13 billion to OpenAI and continues to utilize the company’s pioneering artificial intelligence models, but has opted out of $3.1 billion made a net profit this quarter due to losses on this investment. Microsoft stated that the ongoing nature of the partnership with OpenAI will result in increased variability. Hood said that going forward, the company will exclude any impact from the OpenAI investment in its financial projections.
Microsoft CEO Satya Nadella told analysts that there are two “key” issues to consider when it comes to how the company views its capital spending. First, it is looking at ways to make its fleet of data centers “fungible,” or interchangeable, meaning they can be easily modified to meet changing customer demands in the future. Secondly, the company expects to constantly modernize its infrastructure.
“It’s not like we buy one version of Nvidia and load it up for all the gigawatts we have. Every year you buy it, you’re subject to Moore’s Law, you’re constantly upgrading it and depreciating it, and you’re using the software to increase performance,” Nadella said.
Mark Moerdler, senior research analyst for global software at Bernstein, says Microsoft “builds capacity over time in tranches and can move assets around, which gives them a lot of protection.” But he added: “Is there a general AI bubble? [It’s] possible, and that they did not respond.”