The Information's TITV
00:02:21 · Akash Pasricha, Aaron Holmes
[00:02:21] S0: Right. We saw EnScale as well. They had that facility in The UK that Microsoft said that they were pulling out of because they couldn't get power to that particular facility. Right? [00:02:34] S1: That's right. They pulled out of a data center near London that they were supposed to get in the coming years, but... EnScale found out it was going to take until at least 2030 to connect power to that data center. So Microsoft essentially backed out and said, no. Thanks. We're we're not planning to spend money on that campus anymore. [00:02:52] S0: And there's another ENScale facility in in Texas too. Right? We we learned over the last twenty four hours? [00:02:58] S1: Yeah. ENScale has a few facilities across The US. One is in Texas, and, you know, that is also one where reports are saying that Microsoft, you know, had the option to commit to spend more, but decided not to recently, which, you know, could also be connected to some of the challenges that these smaller cloud providers are having, getting capacity online as quickly as they had hoped. [00:03:21] S0: Aaron, you mentioned $5,000,000,000 at the start of the segment. Do we have any idea what proportion of that $5,000,000,000 was going to IREN, or is that still a question that remains?
00:03:21 · Akash Pasricha, Aaron Holmes
[00:03:21] S0: Aaron, you mentioned $5,000,000,000 at the start of the segment. Do we have any idea what proportion of that $5,000,000,000 was going to IREN, or is that still a question that remains? [00:03:34] S1: I don't know the exact number, but my sense is that Iren is most of that. And the the way that this deal was structured is essentially it's a $10,000,000,000 deal more or less over around five years. And Microsoft had said that they were going to spend, like, 1,800,000,000 per year once the data centers were all set up. Microsoft also says that they don't typically start paying for these until all of the capacity is online and they've actually become a tenant of the data center. So the fact that this was delayed implies that maybe the project itself was pushed back and therefore Microsoft didn't make that first payment in the September quarter that they were planning on. [00:04:13] S0: Right. So, Aaron, big picture here, when I look at these delay stories that have been trickling in, see it as much worse for the neo cloud companies like Iren and EnScale than it is for Microsoft. Is that your read on it as well?
00:04:13 · Akash Pasricha, Aaron Holmes
[00:04:13] S0: Right. So, Aaron, big picture here, when I look at these delay stories that have been trickling in, see it as much worse for the neo cloud companies like Iren and EnScale than it is for Microsoft. Is that your read on it as well? [00:04:31] S1: Yeah. I mean, I think you're right that this environment we're going into, especially after the midterms, it's going to be a lot harder to set up new capacity and to get permitting and, you know, connected to power for for new facilities that are built. So, you know, the the general consensus so far is that that is potentially gonna give the big hyperscalers that already have tons of existing facilities and already have a lot of projects that are, you know, well underway or that already have gotten permitted and access to power, that those big companies are gonna have a bit of a leg up over these smaller firms. Another big difference is that, you know, Microsoft has this huge cash flow machine from its software business, which none of these smaller clouds have. So they're... They've had to, you know, raise significant debt in order to build the data centers that they are now trying to lease to other companies, And that's only going to put more pressure on them as they struggle to get revenue as quickly as they had hoped.
00:04:31 · Aaron Holmes, Akash Pasricha
[00:04:31] S1: Yeah. I mean, I think you're right that this environment we're going into, especially after the midterms, it's going to be a lot harder to set up new capacity and to get permitting and, you know, connected to power for for new facilities that are built. So, you know, the the general consensus so far is that that is potentially gonna give the big hyperscalers that already have tons of existing facilities and already have a lot of projects that are, you know, well underway or that already have gotten permitted and access to power, that those big companies are gonna have a bit of a leg up over these smaller firms. Another big difference is that, you know, Microsoft has this huge cash flow machine from its software business, which none of these smaller clouds have. So they're... They've had to, you know, raise significant debt in order to build the data centers that they are now trying to lease to other companies, And that's only going to put more pressure on them as they struggle to get revenue as quickly as they had hoped. [00:05:26] S0: And the other way that I'm thinking about it is, I mean, there are so many of these Neo Cloud companies now that have popped up. Isn't it quite easy conceivably for Microsoft to just say, Okay, well, if you can't do it, I'll find another Cloud company that can? I mean, is it as easy as that or is it a little more nuanced?
00:05:26 · Akash Pasricha, Aaron Holmes
[00:05:26] S0: And the other way that I'm thinking about it is, I mean, there are so many of these Neo Cloud companies now that have popped up. Isn't it quite easy conceivably for Microsoft to just say, Okay, well, if you can't do it, I'll find another Cloud company that can? I mean, is it as easy as that or is it a little more nuanced? [00:05:45] S1: I mean, that is the the approach that we've seen Microsoft take so far. They have, you know, deals with CoreWeave, Nebius, and scale, IREN, like, basically, all of the the major players in this sort of neo cloud space, which has been their approach just because they want capacity faster than they can build it themselves. But, you know, if that starts to shift and all of those smaller companies all are facing these issues of getting capacity online as quickly as possible. We might see, you know, Microsoft start to invest more in just trying to cram more, you know, capacity into the data centers that it already owns. So it... It'll be very interesting to see how that plays out in the coming years. [00:06:24] S0: And just remind us, Aaron, we saw the company reported earnings, I think it was last week, although the weeks are all blending together now. So, what kind of commentary did we hear about Microsoft being constrained by capacity here, and how important is that a story for them right now?
00:06:24 · Akash Pasricha, Aaron Holmes, Yueqi Yang
[00:06:24] S0: And just remind us, Aaron, we saw the company reported earnings, I think it was last week, although the weeks are all blending together now. So, what kind of commentary did we hear about Microsoft being constrained by capacity here, and how important is that a story for them right now? [00:06:44] S1: Yeah, the supply crunch very much continues. Microsoft says that they have more demand, for GPU rentals than they can meet from customers. And, of course, they also wanna set aside some of their GPUs to run their own, Copilot AI software and and use to train their own models. But, you know, there's kind of a flip side of that where if the entire market faces this demand crunch in a new environment post midterms, you know, potentially the the rental rate for GPUs is going to go up, which at least in the short term could actually kind of boost the revenue that Microsoft and and other cloud providers can extract from customers, especially big labs like OpenAI and Anthropic. [00:07:22] S0: Great. Well, Aaron, I wanna thank you for coming on. That is Aaron Holmes, our Microsoft reporter here at The Information. Big banks may not be thrilled about allowing AI agents just yet, given the risks that are involved with them, but my colleague Yueqi Yang has new reporting that smaller banks are embracing these tools. I want to bring on Yueqi to share more of her reporting. Welcome to the show, Yueqi. It's great to have you back. [00:07:48] S2: Hey, Akash. Thanks for having me.