According to its management, Microsoft (NASDAQ: MSFT) will invest $80 billion in data centers over the next year. To put this in some context, Microsoft’s revenue in the most recently reported quarter was $65.6 billion, and its net income was $24.7 billion. Its balance sheet had $78 billion of cash and short-term investments. Based on these figures, winning the AI race is critical to it both financially and strategically.
Microsoft Vice Chair & President Brad Smith focused on the importance of AI in an article on the company’s Official Blog Post titled “The Golden Opportunity for American AI.” He wrote that the US is the global leader in AI by far. “At Microsoft, we’ve seen this firsthand through our partnership with OpenAI, from rising firms such as Anthropic and xAI, and our own AI-enabled software platforms and applications.”
Smith did not mention two things. First, AI server farms eat more electricity than any sector in history. For Microsoft to reach its goal, it will either need to build its energy systems with nuclear, solar, and wind, or it will need to take energy from the traditional grid, which means it will compete with residential and legacy business demand. Rates will likely rise with demand. And what happens when there is not enough electricity for people’s houses?
Smith also leaves aside the fact that Microsoft competes with OpenAI, Anthropic, and xAI. There are at least a dozen other public and private companies in the space, which include Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOG).
Microsoft’s investment is a bet that it can source enough energy and overcome an army of competitors.
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