Microsoft invests $33B in cloud to boost AI computing power

Microsoft invests $33B in cloud to boost AI computing power

Microsoft is pouring over $33 billion into "neocloud" companies, including Nebius, to secure critical artificial intelligence (AI) computing power, according to Bloomberg.

The strategy, which includes a $19.4 billion deal with Nebius for NVIDIA chips, aims to address the shortage of AI data center capacity and free up Microsoft's own servers for profitable customer services.

This comes as internal teams and OpenAI are driving a surge in AI demand.

NVIDIA chips for AI assistant and language model

The deal with Nebius will provide computing power to internal teams working on large language models (LLMs) and a consumer AI assistant.

As part of the agreement, Microsoft will get access to over 100,000 of NVIDIA's latest GB300 chips.

The arrangement has already triggered a surge in Nebius shares since its announcement on September 8.

Addressing AI data center capacity shortage

The strategy behind these deals is to cope with the shortage of AI data center capacity.

It also allows Microsoft to free up its own server farms for lucrative AI services to customers.

This is just one of many deals Microsoft has struck with neoclouds, a new class of small infrastructure providers that lease out AI-focused computing power.

Microsoft's $33B neocloud commitment

Microsoft has committed over $33 billion to neocloud providers, including Nebius, CoreWeave Inc., Nscale, and Lambda.

These deals show the company's growing willingness to rely on relative newcomers for important infrastructure.

The move comes as Microsoft struggles to bring enough computing capacity online, and renting access to servers from neoclouds speeds up the process.

Financial flexibility and quick pivots

Renting data center access also gives Microsoft more financial flexibility.

The company can categorize some costs as operational expenses, rather than capital costs, which offers potential benefits for cash flow, taxes, and the way profit is reported to Wall Street.

Neocloud deals also let Microsoft pivot more quickly than when operating its own data centers.

Expanding AI services with neocloud strategy

The neocloud strategy isn't just about training AI models.

Recent deals with Nscale in the UK and Norway will help Microsoft deliver AI services in those regions.

Earlier this year, the company also announced it would rent capacity from Oracle Corp. to offer an AI-infused version of its Bing search engine.