Over the past year or so, there has been a lot of talk about how dynamic and vibrant the data center market is. Analysis after analysis was telling everyone how new data center projects can’t keep up with the demand for new capacity. Operators from all over the world are racing to build new facilities; institutions and major energy organizations are worried if there’s going to be enough power for everyone, and businesses are wrestling to get much needed capacities at decent prices.
It’s a recipe for a big market… and also for one that’s headed into some potentially serious problems. And the first signs might already be happening. Recent news showed a few key changes in the world of data centers. For example, Microsoft cancelling several key data center leases across the US and Europe. Then we had CoreWeave’s IPO which was lower than expected and yet despite that, the company still got criticized for being overvalued.
So, what’s really happening? Is this a sign of an overflowing market which is now going into a slowdown? Or is it a simple market correction? Could it be a sign that things are about to change for the long term? Let’s explore what’s happening in the data center space.
Microsoft going against the flow
As we mentioned, over the past year or so, everyone in the IT industry is racing towards more and more data centers. Microsoft has been one of the most active players on the field and has been spending tens of billions of dollars to build and lease data centers. The company is among the ones who invest a lot in artificial intelligence and cloud services as well; two of the biggest data center “clients” there are. So, it was more than expected for Microsoft to be working so hard on making more and more data centers.
Then in the latter third of March 2025, analysts from TD Cowen suddenly announced that the company has cancelled several data center projects in the US and Europe for a total of 2GW of capacity. This comes after the news the software giant canned data center developments and leases for about 200MW in February 2025.
So, is the market really going down? Not really. TD Cowen also reports that Google and Meta have happily taken up some of those freed leases, but it’s not known if all of the free capacity has been reallocated.
So, the next question is if Microsoft is having problems? The company spoke to Bloomberg and had the following statement: “Thanks to the significant investments we have made up to this point, we are well positioned to meet our current and increasing customer demand. Last year alone, we added more capacity than any prior year in history. While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions. This allows us to invest and allocate resources to growth areas for our future.”
DataCenterDynamics was quick to point out that the statement is identical – down to the word – to the one the company provided in February. Microsoft has added that it will stay true to its original statement early in the year of spending $80 billion on AI data centers in 2025.
“To me this all looks and sounds like business as usual. A company this large and with $80 billion of annual spend has the right to move in and out of data center leases, many of which were never officially signed,” Mizuho Securities analyst Jordan Klein said in a note. According to Klein, this is not a sign of problems in the data center market, but simply “tweaking” of plans which is expected. It’s just that the scale is so big, it may look daunting at first, but it’s not really something so major. Especially since the leases were taken up almost immediately.
On the other hand, not everyone is seeing things so positively. “We continue to believe the lease cancellations and deferrals of capacity points to data center oversupply relative to its current demand forecast,” TD Cowen analysts Michael Elias, Cooper Belanger, and Gregory Williams wrote in the latest research note.
And in March 2025, Joe Tsai, who is Alibaba Group’s chairman, said during the HSBC Global Investment Summit in Hong Kong that he sees “the beginning of some kind of bubble,” when it comes to the data center market. “I’m still astounded by the type of numbers that are being thrown around in the United States about investing into AI. People are talking, literally talking about $500 billion, several hundred billion dollars. I don’t think that’s entirely necessary. I think in a way, people are investing ahead of the demand that they’re seeing today, but they are projecting much bigger demand.”
Despite that, he also confirmed that Alibaba Group itself will spend around $53 billion in cloud and AI infrastructure over the next three years. Amazon will spend up to $100 billion on AI infrastructure, while Google has vowed $75 billion and Meta – about $60-65 billion.
CoreWeave’s unpleasant surprise
CoreWeave is a cloud computing infrastructure company which, on March 27 2025, had its long awaited Initial Public Offering (IPO). It should have been great news, but the event was tainted by the company lowering the expected starting price and then also not much interest from the stock market which sent the shares further down on their first day. They recovered a bit afterwards, but were still far from their initial expectations.
CoreWeave is a cloud company, focused on GPUs and AI, making big GPU clusters and then selling their computing capacity to clients. The company has 32 data centers with more than 250,000 Nvidia GPUs in them. So, it looks like a pure win for the stock market.
Well, not so much. The company is also $8 billion in debt. According to Seeking Alpha, the shares structure also isn’t optimal. It’s the usual for tech companies, but it’s not really a good financial practice. Another worry for the investors was the concentration of ownership by large customers. For example, Nvidia owns 6% of CoreWeave. It’s also the sole vendor of GPUs for the company’s data centers which is viewed as a risk by investors as CoreWeave might end up with a lot of older GPUs which will need to be replaced with new ones and by the rate of Nvidia’s innovations that might happen often.
CoreWeave’s main client is Microsoft which brings in more than 60% of the company’s current revenue. That’s bad news, too as it makes the firm dependent on one client and if that client decides to dip, CoreWeave is basically done for. And given Microsoft’s recent cancelling of data center leases, such a possibility now seems far more realistic. Can CoreWeave find enough clients to make up for the lost revenue if Microsoft decides to back out? Probably. But can it do it fast enough?
That’s the question CoreWeave hopes to never have to find the answer for. At least initially, things are looking good. The IPO raised $1.5 billion which made it the biggest tech first sale since 2021. And that’s despite the fact the company lowered the initial starting price and the shares. That lower price though was still enough for many analysts and investors to start questioning whether the IT industry isn’t overspending on AI.
What’s really going on
“In the grand scheme, these headlines might be more on the order of shiny distractions—laser pointers that divert attention from the larger, undeniable momentum behind AI-driven infrastructure. The sector is still in the earliest innings of its expansion. In fact, from the dais at this week’s DCD Connect New York event in Manhattan, Schneider Electric data center and AI development chief Joe Reele characterized its positioning as frankly ‘still in the on-deck circle’. While some bets may need adjustment, for now it appears the industry’s core trajectory remains the same: AI workloads are growing exponentially, the hunger for compute power is insatiable, and data centers will continue to be the foundation of this transformative shift. The AI boom isn’t stalling—it’s maturing. And that’s only to be expected,” says an analysis by DataCenterFrontier on this major news from the data center market.
It backs up that statement with data from the Synergy Research Group. According to that, data centers worldwide have reached a total of 1,136 – doubling in just five years. The hyperscale capacity for critical IT loads has doubled in less than four years and will do so to repeat that growth for the next four.
The US is the leader in hyperscale expansion, having 54% of the global capacity. Europe and China each hold a third of the remaining balance. Amazon, Google and “surprise, surprise”, Microsoft hold 59% of all hyperscale data center capacity. They are followed by Meta, Alibaba, Tencent, Apple and ByteDance.
In 2024, 137 new hyperscale data centers came online. All of them were significantly larger than their predecessors. There are a further 504 new hyperscale data centers at the various stages of planning, construction or fit-outs. On average, 130-140 new hyperscale facilities will be coming online each year.
So, it’s clear that investment in data centers isn’t slowing down. At least not for now. Instead, it’s evolving. It’s getting more focused and specialized, tailoring to the current and expected needs.