Alibaba Group Holding Ltd. Chairman Joe Tsai has raised concerns about a potential bubble forming in the data center industry, warning that the aggressive pace of construction may outstrip initial demand for AI services.
Speaking at the HSBC Global Investment Summit in Hong Kong, Tsai cautioned that Big Tech firms, investment funds, and other entities are rushing to build server bases from the US to Asia without securing clear customers. This, he suggested, could lead to an oversupply of AI infrastructure with uncertain long-term utility.
“I start to see the beginning of some kind of bubble,” Tsai told delegates.
“There are a number of people coming up, funds coming out, to raise billions or millions of capital, without having secured uptake agreements.”
AI-Fueled Spending Frenzy Across the Globe
From Microsoft Corp. to SoftBank Group Corp., major tech players are spending billions to acquire high-performance chips from Nvidia Corp. and SK Hynix Inc., which are crucial for AI development.
Key AI Investments in 2024:
- Alibaba: Plans to invest $52 billion (380 billion yuan) over the next three years
- Amazon: Pledged $100 billion for AI infrastructure
- Alphabet (Google): Allocating $75 billion
- Meta (Facebook): Committed up to $65 billion
- Microsoft: Projected $80 billion in spending this fiscal year
In the US, former President Donald Trump has touted the Stargate Project, a $500 billion AI and data center initiative. Meanwhile, new data centers are springing up from India to Malaysia as nations compete to develop AI supercomputing hubs.
Wall Street Skepticism and AI Cost Concerns
Despite the massive spending, Wall Street analysts have begun to question the sustainability of these investments.
Notably, Chinese AI startup DeepSeek recently released an open-source AI model that it claims can rival US technology but at a fraction of the cost. This has fueled doubts about whether the scale of investment in AI infrastructure is justified.
In February, TD Cowen analysts cited reports that Microsoft canceled some US data center leases, raising concerns about whether the company might be securing more AI capacity than it needs.
Microsoft, however, has downplayed these fears, insisting that its AI investments are necessary but that its spending pace will begin to slow after July 2025.
Alibaba’s AI Strategy and "Reboot" Effort
Alibaba itself has committed to AI as a core part of its future.
After years of regulatory scrutiny and slowed growth, the company is undergoing a strategic "reboot," rehiring key talent, and investing heavily in artificial general intelligence (AGI).
Alibaba’s Qwen-based AI platform has gained traction, boosting its core commerce business and cloud services. Tsai remains confident in Alibaba’s long-term AI vision, but he remains skeptical about the scale of AI infrastructure investments elsewhere.
Tsai: US AI Spending is “Astounding”
In a pointed critique of US tech firms, Tsai expressed astonishment at the huge capital outlays for AI, suggesting that some companies are projecting demand far beyond current reality.
“I’m still astounded by the type of numbers being thrown around in the United States about investing into AI,” Tsai said.
“People are talking about $500 billion. I don’t think that’s entirely necessary.”
His warning reflects broader concerns that the hype surrounding AI could lead to overinvestment, similar to the dot-com bubble of the early 2000s.
As the AI boom accelerates, the question remains: Is this AI-driven spending spree a wise investment—or the start of an unsustainable bubble?