Microsoft, under the leadership of CEO Satya Nadella, is adapting its strategy to enhance performance and reduce expenses in its quest for artificial intelligence (AI) profitability. During a recent discussion, Nadella emphasized that the company could achieve ten times better performance for the same computing costs once it settles on and optimizes a suitable algorithm. This represents a huge turn as Microsoft tries to cut costs and use outside resources.
To this end, Microsoft is also moving in the direction of outsourcing their data center operations — most notably to outside data center service provider CoreWeave. Known as a “neocloud,” CoreWeave focuses on supplying chips from AI-making giant Nvidia, key processing components for AI, which has recently surged in popularity. This strategic move enables Microsoft to access short bursts of additional computing power for specific projects without the overhead of building new data centers.
Microsoft has poured a staggering amount of cash into the underlying infrastructure for AI, with losses this year totaling $64 billion. Much of this spending goes towards retrofitting data centers needed to churn out the new AI-based hotness. Services like Copilot, embedded within Microsoft 365 applications, are a prime illustration of how the company is doubling down on improving productivity with AI.
Microsoft has moved to third-party data centers for on-demand, temporary spikes in computing capacity. Yet, it has some of its own revenue-generating AI services no longer housed in its own facilities. This boutique strategy will enable the company to better calibrate AI services to control costs while still delivering the most effective performance available on the market today.
According to Cantor Fitzgerald equity analyst Thomas Blakey, this new move by Microsoft makes perfect sense for their strategy, saying that
“If they have to flex up in some way, they’ve been consistently saying that they’re going to shift away from buying more data centers and dirt and cement and they’re going to leave that to the neoclouds.”
In addition, Microsoft continues to hold a significant strategic partnership with OpenAI, developer of ChatGPT. As it turns out, Microsoft blessed OpenAI to partner with Oracle. Together, they will deliver on the highly ambitious “Stargate” data center project in Texas. Collaboration on this initiative is indicative of the wide-ranging aspiration both companies share to harness generative AI technologies to fundamentally transform their operations.
With great purpose, Microsoft is steering a transformational tide. It’s heavily focusing on streamlining its infrastructure and proactively pursuing new types of partnerships that promise to reshape its efforts in cloud computing and generative AI.
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