The Information's TITV
00:00:13 · Akash Pasricha
[00:00:13] S0: Welcome everyone to The Information's TITV. My name is Akash Pasricha. It is Thursday, November 5. Today on the show, we'll have an update for you on Microsoft's CapEx spending and how that is looking on the ground. We'll then unpack how smaller banks are embracing AI agents. And we're going to close out the show with our partner, DigitalOcean. We'll discuss the company's Neo Cloud ambitions in the difficult data center regulatory environment and its recent quarterly results. It's going to be a great show, so let's get right on into it. Microsoft delayed about $5,000,000,000 in planned capital spending because data center capacity it expected to rent from cloud provider, IREN, wasn't ready on time. For more on this, I want to bring on Microsoft reporter, Holmes. Aaron, welcome to the show. It's great to have you back. Happy to be here. Okay. So what's going on between Microsoft and IREN?
00:01:08 · Aaron Holmes, Akash Pasricha
[00:01:08] S1: Yeah. So essentially last week in earnings, Microsoft basically gave this disclosure that they had to cut down on their planned CapEx for the quarter by about 5,000,000,000. And they didn't say who exactly, but they said, you know, a third party was delayed getting them access to GPUs. And I found out that this third party or at least one of the third parties they were talking about is IREN, specifically that IREN has had delays with a a data center campus in Texas that they, you know, had planned to deliver to Microsoft this year. But it seems like that campus is running into delays, and as a result, Microsoft has not yet spent this money that it was supposed to in the in the September quarter. [00:01:50] S0: And do we know... Have a sense for what... Why these delays happened at all? [00:01:55] S1: You know, I don't know the exact reason, but across the board, we are seeing, issues with data centers being able to just finish construction on time and then also connect to power. There... There's a lot of, you know, various hoops they have to jump through to get power ready for the clusters of GPUs that they're trying to rack. And we've seen that also hit various other neo clouds, including several that Microsoft does business with just in the last couple of months. [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?
00:02:21 · 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, 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, 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?