Microsoft remains steadfast in its data center expansion management, with CEO Satya Nadella noting the compute giant is keeping its plans flexible enough to account for long-term strategic needs and chastised those pushing short-term views.

“The reality is we've always been making adjustments to build, lease, what pace we build, all through the last 10, 15 years, it's just that you all pay a lot more attention to what we do quarter-over-quarter nowadays,” Nadella said during the hyperscaler’s latest earnings call when questioned about recent moves to slow down some data center builds.

Nadella explained that Microsoft’s planning and execution are tied to where it expects demand to grow in the future and not specifically where demand might be today.

“The key thing for us is to have our builds and lease be positioned for what the workload growth of the future, so that's what you have to go seek to,” Nadella said. “So there's a demand part to it, there is the shape of the workload part to it, and there is a location part to it. You don't want to be upside down on having one big data center in one region when you have a global demand footprint. You don't want to be upside down when the shape of demand changes.”

Nadella added that the current artificial intelligence (AI)-fueled demand environment is rapidly changing due to evolving technology advances, model architecture changes, and increased component efficiency.

“Given all of that, we just want to make sure we're building, accounting for the latest and greatest sort of information we have on all of that,” Nadella said.

Microsoft CFO Amy Hood said that the compute giant expects capital expenditures for the final quarter of its current fiscal year “to increase on a sequential basis,” with total second-half capex to remain unchanged from previous guidance.

“As a reminder, there can be quarterly spend variability from cloud infrastructure buildouts and the timing of delivery of finance leases,” Hood added.

Power remains a limiting factor

Power remains the bigger impediment to Microsoft’s data center expansion.

Nadella specifically noted, “I need power in specific places so that we can either lease or build at the pace at which we want.”

Power geography remains an ongoing challenge for hyperscalers.

Matt Landek, who leads JLL’s Data Center Project Development and Services, previously described North America’s power grid as “taxed,” and that power remains the biggest hurdle toward expanding data center capacities.

“We've been talking about the power problem for years, but there was still available capacity on the grid,” Landek told SDxCentral. “We're just slowly working ourselves toward maxing out the grid.”

Landek described ongoing logistical and technical challenges of coordinating the delivery of power resources to new data center locations that can delay the construction of those data centers for years. That has forced many to turn to alternative power sources to act as “bridge solutions,” which can help meet the “speed game” that has emerged.

“I think what we have seen is organizations that want to get connected first,” Landek said. “There's been a lot of focus in the industry of just getting connected to power.”

This power deficit has forced hyperscalers to get more creative in how they approach that hurdle.

Microsoft last year signed a deal to take 100% of the power generated from a revived Three Mile Island nuclear power plant to fuel its AI data center ambitions, a deal that came as rival hyperscalers made similar nuclear-powered arrangements.

Google Cloud signed a deal to purchase nuclear-generated power from multiple small modular reactors (SMRs) being produced by Kairos Power. This includes the eventual acquisition of up to 500 MW of nuclear-based energy.

Amazon Web Services (AWS) also jumped on board announcing plans to invest millions of dollars into nuclear power projects to meet data center energy demands. Those plans include support for the development of three nuclear energy projects, including “enabling the construction of several new small modular reactors” that are described as nuclear reactors with a smaller footprint that allows them to be constructed quicker and closer to the energy grid.

Ed Anderson, a distinguished VP analyst at Gartner, previously told SDxCentral that AWS was running into a pair of problems: how to power these data centers and how do they stay on track with their sustainability goals.

“The answer to the problem has to be ‘we’re going to invest in new sources of energy, but it has to be clean energy,’” Anderson said. “That could have been, ‘we’re going to build solar farms. We’re going to build wind farms, or hydroelectric, or geothermal, or something like that, or, in this case, nuclear. The announcement is interesting because it indicates that Amazon is adding that nuclear option.”