Microsoft has struck a $9.7 billion deal with Australian neo cloud provider IREN, leveraging their specialized cloud computing infrastructure and Dell-supplied hardware to address ongoing GPU supply constraints. This partnership reflects a broader industry trend where tech giants increasingly rely on external cloud providers and debt financing to scale data center capacity amid rising demand for cloud services.
The video discusses Microsoft’s recent deal with an Australian cloud provider called IREN, which is notable for its significant presence in the U.S. market. IREN, originally a bitcoin mining company, has transitioned into a “neo cloud” provider, specializing solely in cloud computing services without other business lines. This deal also involves Dell, which supplies the necessary hardware such as servers and GPUs for cloud computing. Microsoft’s partnership with IREN highlights the tech giant’s ongoing struggle with supply constraints for GPU computing power, a critical resource for cloud services.
Microsoft’s CFO, Amy Hood, has acknowledged these supply issues during earnings calls, emphasizing the company’s need to allocate more capital expenditure to build out its own infrastructure. However, Microsoft is also increasingly relying on neo cloud providers like IREN to meet demand. Other players in this space include companies like Nebulous and Enscale, which also focus exclusively on cloud data center operations. This strategy allows Microsoft to scale its cloud offerings more efficiently by leveraging external providers who specialize in running data centers.
Financially, the deal involves Microsoft paying IREN over $9 billion, with $5.8 billion going to Dell for the hardware equipment. This arrangement sheds light on the margins and operating costs involved in cloud infrastructure expansion. It also reflects a broader trend among tech giants to take on more debt and financing to support their capital expenditure needs. Alphabet, for example, has recently tapped both European and U.S. debt markets to fund its own data center expansions, signaling a shift in how these companies finance growth.
Morgan Stanley estimates that around $3 trillion will be required globally to roll out data center infrastructure by 2028. About half of this investment is expected to come from the companies’ own cash flows, while the other half will be financed through various means such as debt markets and specialized financing firms like Blue Owl. The video highlights how interest rates easing slightly has made it more feasible for tech giants to raise capital through debt, enabling them to continue investing heavily in cloud infrastructure despite economic uncertainties.
Overall, the video illustrates a significant shift in the cloud computing industry where major players like Microsoft and Alphabet are increasingly partnering with specialized neo cloud providers and leveraging external financing to meet the surging demand for computing power. This approach allows them to overcome supply constraints and accelerate growth in their cloud services, which remain a critical component of their business strategies moving forward.