AI Data Center Play 'Reinforced' by Alphabet, Microsoft Spending

Alphabet and Microsoft have significantly increased their capital expenditures (capex) on AI data centers in recent years, indicating a strong long-term commitment to AI infrastructure. This investment trend is driven by the growing demand for AI workloads and the need for high computational power and power density required by AI workloads.



Alphabet's capex grew by 46% year-over-year in Q1 2024, driven by the appetite for AI-ready hardware, according to Dell'Oro Group. This growth is largely fueled by the increasing demand for GPU-accelerated servers designed for AI applications. Alphabet's capex is expected to grow robustly by 35% overall for 2024, as reported by Dell'Oro Group.

Microsoft, on the other hand, reported $20 billion in capital spending in Q1 of fiscal 2025, with $14.9 billion allocated for property and equipment. Capital expenditures are expected to rise in the next quarter, with analysts predicting $63.2 billion in total spending for fiscal 2025, showing a 42% increase. Microsoft plans to invest approximately $80 billion in fiscal 2025 to build out AI-enabled data centers, with more than half of this total investment being in the United States.



These investments by Alphabet and Microsoft in AI data centers are significantly higher than their historical capex trends, indicating a strong long-term commitment to AI infrastructure. This commitment is driven by the growing demand for AI workloads and the need for high computational power and power density required by AI workloads.

The specific AI workloads and applications driving the demand for high-density data centers include generative AI (Gen AI), large language models (LLMs), and AI-ready data center capacity. In a midrange scenario, demand for AI-ready data center capacity is projected to rise at an average rate of 33% a year between 2023 and 2030. By 2030, around 70% of total demand for data center capacity will be for data centers equipped to host advanced-AI workloads.

Geopolitical dynamics, particularly the competition between the US and China in AI, also influence the strategic decisions of these tech giants in expanding their data center footprint. Microsoft President Brad Smith highlighted the importance of this competition and the need for the US to take steps to ensure American AI technology is adopted in markets around the world. By investing in AI data centers and expanding their global footprint, these companies aim to maintain their competitive edge in the AI market and ensure the adoption of American AI technology in international markets.

In conclusion, Alphabet and Microsoft's increased investment in AI data centers reflects their commitment to the growing demand for AI workloads and the need for high computational power and power density required by AI workloads. This investment trend is also influenced by geopolitical dynamics, particularly the competition between the US and China in AI. As AI technology continues to evolve, these tech giants are positioning themselves to maintain their competitive edge in the AI market and ensure the adoption of American AI technology in international markets.