Microsoft Warns of AI Service Disruptions Due to Capacity Constraints This Quarter

Microsoft Warns of Potential AI Service Disruptions This Quarter Microsoft's Executive Vice President and Chief Financial Officer, Amy Hood, warned during the company’s fiscal 2025 third-quarter earnings call on Wednesday that customers might face AI service disruptions as early as June. This cautionary note comes amid increased demand, which has outpaced the company’s capacity to bring new data centers online. "We had hoped to be in balance by the end of Q4, but we saw an uptick in demand throughout the quarter," Hood explained. "As a result, we will be slightly short as we close the year." The timing of Hood’s statement is particularly noteworthy given recent reports of Microsoft canceling multiple data center leases. In February, investment bank TD Cowen released a memo stating that Microsoft had canceled leases for a significant amount of power capacity—equivalent to “a couple hundred megawatts” or about two data centers. Since then, additional reports have emerged detailing more lease cancellations. However, Microsoft insists that these cancellations are unrelated to the capacity constraints. The company remains committed to its investment plans, with a planned $80 billion budget for data center development this year. Half of this investment is dedicated to U.S.-based data centers. Hood emphasized the complexity and long-term nature of data center planning, noting that decisions from land acquisition to build-out can span between two to seven years. "These are very long lead time decisions, and we are continuously adapting to changes in demand," she said. Microsoft CEO Satya Nadela highlighted the company’s ongoing efforts to expand its global data center footprint during the earnings call. He announced that Microsoft had opened data centers in 10 new countries across four new continents during the last quarter, underscoring the company’s commitment to meeting rising global demand for AI services despite the current capacity challenges.