Microsoft and Google's AI Spending Boom: The Impact on Infrastructure and Data Centers

Wednesday - November 29 2023, 12:31 UTC - 11 months ago

Microsoft and Google are increasing their AI spending capabilities, and as a result, there will be an increased demand for data centers for storage and energy. This leads to increased market shares of IaaS (Infrastructure as a Service) for AWS, Microsoft Azure, Alibaba Cloud and Google Cloud, as well as increased market shares of hardware providers Nvidia and AMD. OpenAI could provide a breakthrough that further enhances the need for bigger and better AI infrastructure.

This capex spending is up from $7.8 billion in Q3 2023 (Jan-Apr 2023). Amy Hood, CFO at Microsoft, told analysts on a conference call the money is to support cloud demand, including investment in AI infrastructure. This includes new datacenters plus more "CPUs and GPUs and networking equipment. Microsoft has invested about $13 billion in OpenAI. Microsoft was at $3 billion per quarter on mostly AI instructure and will now goto about $5 billion per quarter.

Microsoft, along with AWS and the other major hyperscalers already account for 37 percent of the world's datacenter capacity. Amazon, Google and Microsoft each has 150-200 hyperscale data centers in operation, and each has another 80-100 in the pipeline. China has the second largest IaaS market behind the US, with Chinese IaaS providers accounting for 12.3 percent of worldwide market share in 2022. Microsoft invested $2.5 billion to purchase a 775-acre data center campus in West Des Moines, Iowa as part of their increased spending for AI.

Google, cap-ex investment was $13 billion in the first half of calendar 2023 versus $16.6 billion a year earlier. Ruth Porat, ex-CFO and newly crowned President and Chief Investment Officer, said part of this is related to delays in certain datacenter construction projects. Google currently has 22 AI-focused Google Cloud regions, with plans to open another four by 2024. Google will need to double its 2023 spending to match Microsoft plans for 2024.

According to Gartner, the worldwide infrastructure services market grew by 29.7 percent to hit a total of $120.3 billion during 2022, up from $92.8 billion the previous year. There was $48 billion in 2022 revenue for AWS and nearly $26 billion for Microsoft Azure. China's Alibaba cloud came in a distant third at $9.28 billion, just beating Google Cloud into fourth place, which had revenue of just over $9 billion. Huawei snuck into the top five global IaaS providers with $5.25 billion in revenue and 4.4 percent market share.

OpenAI is a multibillion-dollar research lab based in San Francisco, containing Carnegie Mellon trained AI specialists to work on major breakthroughs. If OpenAI has a real breakthrough to AGI or ASI that requires massive compute to accelerate, then all of the other major players will have to develop the improved scalable models and increase budgets. This would mean further increases in sales and share price for Nvidia and AMD. There will need to be a build out in energy production as doubling or tripling the amount of AI compute will require even more electricity.

In 2023, data centers consumed about 200 terawatts per hour (TWh) per year globally. 90 TWh are directly attributable to the three largest hyperscalers: Amazon, Microsoft, and Google. Huawei had a 2020 revenue of 11.8 billion USD and a market share of 4.4%. The explosive growth of the global IaaS market is projected to reach $259 billion by 2024.