Jefferies recently hosted Microsoft in Australia to address swirling concerns prompted by a tweet and a Cowen report that triggered jitters in the market. Throughout the discussion, Microsoft executives underlined that there is no shift in the company’s data centre (DC) plans.
“Microsoft are strongly refuting any change to their DC strategy,” they stated, emphasising that investments are guided by a 10-year outlook to meet growing demand for cloud and AI. This stance includes the ability to “tweak their forecasts up and down with time on a regional basis depending on which regions need to be prioritised,” ensuring that expansion remains both flexible and robust.
Microsoft noted it has already invested heavily in data centres over the past few years. On a recent earnings call, the company said it expects capital expenditure growth to move from the elevated 50–60% rate back to its “old high base,” which is still substantial and indicative of ongoing growth.
Moreover, the tech giant anticipates that AI-related supply and demand will become more balanced by the end of the current fiscal year. By that point, supply growth should better match surging demand, alleviating concerns of persistent shortages in AI capacity.
A key point of confusion in the broker report involved the definition of leasing. Microsoft explained that deals exceeding 15 years are sometimes categorised as leases, even if Microsoft itself operates the data centre. This accounting nuance may have led to misunderstandings about how the company structures its DC partnerships. In reality, Microsoft’s reliance on third-party real estate investment trusts (REITs) remains limited.
Significantly, Microsoft sees “no difference between AI and cloud in terms of the long-term outlook in terms of ROCE, ROI and margins.” Both areas are viewed as central pillars of the company’s future growth, driven by the same strategic investment approach.