Amazon, $AMZN, intends to invest $150 billion in data centers as the world braces for a surge in demand for artificial intelligence.
This spending spree is a demonstration of strength as the company seeks to maintain its dominance in the cloud services market, where it holds roughly twice the market share of its closest competitor, Microsoft Corp. Amazon Web Services (AWS) experienced a slowdown in sales growth to a record low last year as business customers trimmed costs and postponed modernization projects. However, spending is now beginning to increase again, and Amazon is eager to secure land and electricity for its energy-intensive facilities.
"We're significantly expanding our capacity," said Kevin Miller, an AWS vice president responsible for the company's data centers. "I think this gives us the ability to get closer to customers."
Over the past two years, Amazon has committed to spending $148 billion on building and operating data centers worldwide, according to a Bloomberg tally. The company plans to expand its existing server farm hubs in northern Virginia and Oregon, as well as venture into new locations, including Mississippi, Saudi Arabia, and Malaysia.
Amazon's planned investment in server farms far exceeds the public commitments from Microsoft and Alphabet Inc.'s Google. However, neither company consistently discloses data center-related spending. Microsoft and Google spokespeople declined to provide comparable figures and noted that each company likely includes different costs in their estimates.
Despite broader cost-cutting efforts at Amazon, AWS's capital expenditures on data centers decreased by 2% in 2023 for the first time, while Microsoft increased its spending by more than 50%, according to the research firm Dell'Oro Group. Nevertheless, Amazon's chief financial officer stated last month that capital expenditures would rise this year to support AWS growth, including AI-related projects.
A significant portion of Amazon's data center expansion is aimed at meeting the growing demand for corporate services such as file storage and databases. However, these facilities, along with advanced and costly chips, will also provide the massive computing power needed for the anticipated surge in generative artificial intelligence.
While Microsoft, its close partner OpenAI, and Google are widely recognized as leaders in commercializing software capable of generating text and insights, Amazon is developing its own tools to compete with OpenAI's ChatGPT. Amazon has also partnered with other companies to power AI services with its servers, anticipating tens of billions of dollars in AI-related revenue.
AWS initially established its first server farms in Virginia, on the outskirts of metropolitan Washington. The area, home to the first commercial interchange for web traffic, remains a critical hub for video streaming, corporate, and government data. Subsequently, Amazon opened data centers in rural eastern Oregon, leveraging cheap hydroelectric power and generous tax incentives. Virginia and Oregon have since received approximately four out of every five dollars that AWS spends on US infrastructure.
