Microsoft has struck a series of deals with “neoclouds” — a new category of small infrastructure providers that lease out AI-focused computing power. The company has committed more than $33 billion to such providers including Nebius, CoreWeave, Nscale and Lambda.
Cloud vendors have generally operated their own data centers but Microsoft is struggling to bring sufficient computing capacity online. Renting access to servers from neoclouds helps seed up the process, as they have already solved logistical challenges including obtaining sufficient power and chips.
“We are in very much land-grab mode in the AI space,” said Scott Guthrie, who leads Microsoft’s cloud efforts. “We’ve made the decision that we don’t want to be constrained in terms of capacity.”
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Nebius recently announced it had struck a multi-year deal with Microsoft worth $17.4 billion to provide cloud computing power for AI workloads. The deal will be worth $17.4 billion through 2031 to Nebius, which counts Nvidia and Accel as its investors. As part of the deal, Microsoft will get access to more than 100,000 of Nvidia Corp.’s latest GB300 chips, according to people familiar with the matter. Nebius shares were up about 5.5% at 10:17 a.m. in New York, while Microsoft was mostly unchanged.
Guthrie also said that Microsoft is freeing up capacity in its own data centers for cloud clients by running some computing for internal and OpenAI work at neocloud facilities. This strategy allows Microsoft to use its own servers to sell more AI services at a time when computing capacity is tight, and investors are trying their hardest to find evidence that their investments in the technology is paying off.
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Renting data center access gives Microsoft a degree of flexibility, according to Bloomberg. For instance, 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, said Bernstein analyst Mark Moerdler. Neocloud deals also let Microsoft pivot more quickly than when operating its own data centers, he added.
Aside from using neocloud servers to train AI models Microsoft is also using its recent deal with NScale in the UK and Norway to help deliver AI in those regions, according to Guthrie.
Google is renting some capacity from CoreWeave as part of its work with OpenAI, according to a Reuters report. However, rival cloud companies like Amazon haven’t announced work with neoclouds to the same degree. Moerdler said that’s probably because Microsoft has more AI-related demand than its competitors.