Microsoft Secures $174 Billion AI Deal with Nebius to Boost Capacity

Microsoft has secured a significant deal with Nebius, an AI infrastructure company, worth 174 billion dollars. This agreement will see Nebius providing Microsoft with AI computing power over the next five years, with an option for Microsoft to purchase an additional 20 billion dollars in services, extending the contract until 2031. This move is part of Microsoft's broader strategy to address the ongoing shortage of AI computing capacity.

Nebius, which was spun off from the Russian internet giant Yandex, will supply Microsoft with dedicated capacity from its new data center in Vineland, New Jersey. The deployment will occur in multiple phases over the current and next year, with services expected to commence later this year. The specific use of these resources by Microsoft has not been disclosed.

This agreement is a significant win for Nebius, allowing the company to substantially expand its AI cloud business by 2026. Nebius has been capitalizing on the AI boom to grow its data center operations. Meanwhile, Microsoft is working to alleviate its long-standing issue of AI cloud computing capacity shortages. The company has been rapidly expanding its cloud and AI infrastructure but continues to face demand that outstrips supply. The Chief Financial Officer of Microsoft has indicated that the company expects to face capacity constraints until the end of this year.

Nebius, founded in 1989 and headquartered in Amsterdam, was renamed from Yandex NV last year. The company has been expanding its presence in the United States, opening offices in San Francisco, Dallas, and New York. Nebius aims to accelerate its growth by seeking additional financing options. The company plans to cover the capital expenditures related to this deal through the cash obtained from the agreement and debt secured by the contract. Nebius is evaluating multiple financing options to achieve growth rates far exceeding its original plans and will update the market on its financing strategy at an appropriate time.

This deal underscores the growing demand for high-performance AI computing capabilities within the tech industry. Microsoft's substantial investment in AI infrastructure, including its announcement in July that its annual AI capital expenditure would reach 1200 billion dollars, highlights the company's commitment to securing the necessary computational resources. This investment is a significant increase from the previous year's 880 billion dollars and nearly four times the 320 billion dollars spent in 2023. The agreement with Nebius is expected to further bolster Microsoft's AI capabilities, ensuring that the company can meet the increasing demand for AI services.