Amazon has reportedly postponed certain commitments related to new data center contracts, according to analysts at Wells Fargo in a note released on Monday. This development adds to the growing indications that major hyperscale cloud providers are re-evaluating and potentially scaling back their ambitious expansion plans for AI-focused data centers. The report suggests that Amazon has arrived at a similar conclusion to Microsoft, which recently announced the abandonment of some previously planned data center locations.
Just a week prior, Microsoft disclosed its decision to suspend some of its data center development initiatives. This move was foreshadowed by earlier observations, notably highlighted by investment bank TD Cowen. These decisions are particularly noteworthy considering Microsoft's substantial $80 billion commitment to data center expansion between mid-2024 and mid-2025 (the company's fiscal year).
The latest report from Wells Fargo analysts points to a broader trend within the hyperscale sector. “Over the weekend, we heard from several industry sources that AWS has paused some of its lease discussions on the (primarily international) colocation side,” the analysts wrote. They further clarified that the approach mirrors Microsoft's recent actions, with both companies opting to scale back new projects while not canceling existing, signed agreements.
Several factors appear to be contributing to this apparent shift in strategy. Geopolitical uncertainties are increasingly influencing the technology landscape, with US President Trump's recent announcement of significant tariffs injecting volatility into the stock market. These tariffs have a direct impact on hyperscalers, who routinely procure critical and high-value equipment from international sources. A prime example is the supply of advanced GPUs from Nvidia, which are predominantly manufactured in Taiwan, although TSMC's Arizona facility is gearing up to produce the latest Blackwell generation of these essential AI chips.
While the potential for US-based GPU production at TSMC's Arizona plant could eventually mitigate some costs for Amazon and Microsoft, the recent decisions to pause expansion plans predate the implementation of these tariffs. This suggests that other underlying factors, potentially related to the economic pressures of rapid AI infrastructure build-out and evolving demand forecasts, are also at play.
Further insights into these strategic adjustments are expected when both Amazon and Microsoft release their respective quarterly financial results next week. The market reacted negatively to the news on Monday, with CNBC reporting a decline in share values for both companies. Amazon's stock has now fallen by 25 percent year-to-date, while Microsoft's has seen a 15 percent decrease. These market reactions underscore the significant investor attention on the capital expenditure plans of these tech giants, particularly in the context of the ongoing AI infrastructure race.