The number of tech giants paring back on their AI data center plans rises to two. According to banks Wells Fargo and TD Cowen, Amazon has paused negotiations on some co-location data center deals, primarily in Europe. The news comes shortly after several reports have indicated Microsoft has paused or cancelled some of its plans.
“It’s not clear the magnitude of the pause,” a Wells Fargo report reads, “but the positioning is similar to what we’ve recently heard from MSFT—they are digesting aggressive recent lease-up deals.” It goes on to emphasize that Microsoft still appears to be going through with deals already signed. Co-location is the concept of sharing enormous infrastructure costs by building data in partnership with other companies that need it.
It is important to keep in mind that other companies, including Meta and xAI, continue to aggressively build out data centers to fuel their AI models. Building out large-scale data centers requires significant amounts of power, which grids have struggled to satisfy, and Amazon may need more time to open data centers already under construction. The Wells Fargo report states that the e-commerce giant already has 9 GWs (gigawatts) of active power capacity in its existing data center infrastructure.
But the news further supports some concern that demand for AI infrastructure is cooling as businesses still struggle to find ways to actually use the new technology to save time and money. It does not help that President Trump’s ongoing trade war is causing stocks to tumble. Amazon is down 24% this year, and the company is exposed to tariffs on China, as estimates suggest more than 70% of goods on its namesake marketplace come from China.
There is concern amongst economists that the trade war and potential recession could slow down the AI boom as major players, including Nvidia, are caught in the crossfire. That company receives a substantial amount of its business from China and is under scrutiny for potentially turning a blind eye to high-end chips evading sanctions and landing in China. If Amazon cuts back investment on new data centers, that could further hurt Nvidia’s sales of chips.
Amazon reports its next earnings on May 1st, and there will be close eyes on how AI demand is looking. Microsoft recently pulled back on an ambitious $1 billion data center project in Ohio, surprising officials there who offered the company generous tax incentives to snag the deal despite concerns that it would employ very few people and require immense energy and water resources. CEO Satya Nadella has tried to tame expectations regarding the AI revolution, saying in an interview that the technology has not yet turned into a meaningful lift for the U.S. economy, though his company has reiterated plans to spend $80 billion on infrastructure in the next few years.
If there is any silver lining, it is that locals will not have to pay as much in taxes to support these upgrades that have been cancelled. On the flip side, they do employ a lot of construction workers for initial rollout, and there has been some hope that the demands of data centers would finally push local municipalities to upgrade fraying infrastructure and build out clean energy. There was a sliver of hope that AI would provide something of immediate practical value, if not chatbots that still get things wrong all the time or Palantir-based police state systems.
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