Microsoft Abruptly CANCELING *MAJOR* AI Spend | WARNING.

oh hold up is Microsoft actually

cancelling data center leases and what

does this potentially mean for AI and

whole like freaking economy that's

surrounding it or is this potentially

just because of a uh you know reduced

partnership between open Ai and

Microsoft after all open AI partnering

with Stargate which you know is a

partnership between Oracle and soft bank

and not exactly uh you know just

Microsoft here so we got a few things to

put together but uh first I got to say

this hey everyone me Kevin you got to

get the inro yeah a couple days ago we

talked about saan Adela and this

interview that he gave where he talked

about hey it's it's really important to

make sure that artificial intelligence

Supply does not so far exceed the level

of demand that you have so that you

actually Escape your ability to earn a

return on investment so let me put it in

English if you have a lemonade stand you

should not have 1 Million Cups of

lemonade on your lemonade stand maybe

you should have 10 and try to sell those

10 first and then make more now of

course there are economies basically at

this point built around supplying these

lemonade stands with chips and server

racks and uh artificial intelligence

compute capability uh energy

infrastructure you name it uh so this

actually came up via a rumor first and

before I made my last video reviewing

the satian Adella interview I actually

saw the rumor but I didn't cover it not

because I you know didn't want to give

you the most recent information but

because at that point it was unclear if

it was just Rumor Mill there are plenty

of people just harping on this idea that

oh the AI bubble is over uh and I don't

want to just Echo what is potentially

misinformation but now that I'm getting

more and more corroborated data on this

it it's worth noting that it could still

be wrong there could be idiosyncratic

problems with Microsoft or this could be

the beginning of a larger Trend uh so

what I'd like to do is go through this

and and then analyze what could be going

on here I'd also like to uh just first

speculate uh that uh it is entirely

possible that the Deep seek effect is

still present now most people argue nah

man the Deep seek effect isn't going to

have an impact it's actually just going

to lead to an increase in usage for AI

and look I I believe that AI usage can

go up but remember if you can make it so

much more efficient to utilize AI you

know how many more queries are you going

to send to chat GPT in other words if

all of us together we're in a classroom

together let's say and they're 25 of us

and and we send 10 inquiries a day to

GPT okay fantastic we're sending uh 250

inquiries and if half of you are using

grock now and a quarter of you using are

using cloud and and a quarter of you are

using GPT then there's even less on GPT

but the aggregate is still 250 inquiries

right if it now

becomes 10 times cheaper to provide that

answer because of supply side

efficiencies in other words they can

manufacture those answers for us with

one/ tenth of the compute does that mean

all of us are going to 10x our output

are we going to go from 250 queries to

2,500 no of course not now is it

possible that maybe one of you was

research scientist and you're like my

gosh I'd love to increase my input but

the cost per cury query is too high for

my research purposes and so I would like

to increase my input of course or output

of course you know you're going to send

more quaries but not everybody will so

there I don't necessarily agree with

this argument that unless there's this

significant Improvement in how good AI

is that everybody is going to go from

the 2023 you know 2022 I should say

level of AI queries basically zero to

the level of

2024 AI queries call that 100% I don't

necessarily think we're going to go from

0 to 100 to 200 just because the supply

side is more efficient maybe we'll go

from Z to 100 to5 or 110 right some

users will use more but not everybody

will uh and and so this means the

underlying deep seek problem is still

present that there is a possibility that

Satia Adella was correct in that we

don't want to overs Supply let's

actually build the infrastructure let's

get a return on the infrastructure and

then let's actually uh uh you know

continue to reinvest at that point now a

lot of folks especially on X and I think

there's certainly a lot of knee bending

going on here you know people like to

get on the floor and and go you know for

Elon um so there's a lot of talk about

how great and wonderful grock is and and

it might be wonderful maybe maybe it's

the best AI you've used that's fine

and I'm not here to say that one AI is

better than another uh you know just

because uh who was it uh you know I I

think it was was it GPT that that beat

the Minecraft uh game at the end but

Claude didn't uh and Gemini I don't know

had some problems with uh creating the

workbench at the beginning I don't know

just because one is better than the

other I don't necessarily think leads to

more quaries and that's the big question

right how many more quaries are we

really going to get how much increase in

demand are we really going to get and I

think Adella is actually making a

reasonable approach here where he's

being smart and and I've been critical

of his sort of blind optimism on wanting

to continue to spend but then since then

and I'm not saying you know he's changed

his opinion because of me and of course

we're going to go through this document

here but since that moment where where I

was sort of you know engaging on X about

like this is ridiculous the podcast came

out where saia's actually like yeah you

know we we want to evaluate some Roi

before we keep spending I'm like hm okay

so maybe he's hearing the criticism and

some investors are saying yeah no we we

need some Roi here before we keep going

because if we just dilute Ai and we're

not actually creating more demand

everybody is just taking you know pieces

of of the same pie the pie isn't

actually growing then why do we want to

keep spending you know does is Elon Musk

really going to build out another

Nashville Tennessee uh you know super

infrastructure uh for for xai or does he

need to now focus on marketing and

getting you know I mean they've already

gotten Gro to top and app down s which

is fantastic you should go download it

give it a shot right I I have no horse

in this race I don't really care what

you use try them all is what I always

say but is he now going to go out and

build another sort of Giga AI Factory

using Blackwell chips or are we going to

focus on some Roi here first and I think

that's exactly what's going on here so

what do we have here Channel checks

indicate us data center lease

cancellations by Microsoft our Channel

checks indicate that m Micosoft has

canell leases in the United States

totaling quote a couple hundred

megawatts with at least two private

dentist data center operators number two

Microsoft has pulled back on the

conversion of uh okay basically like uh

statements of qualifications these are

pre-lease statements that you get saying

yeah yeah yeah we're we're capable of

building out that data center for you uh

and and those usually convert to leases

but apparently those are getting canned

uh and number three has reallocated a

considerable portion of its

International spend uh to the United

States uh which is good you know that's

basically what Trump wants right is more

of that reallocation to the United

States so so seeing a reallocation to

the United States is great but this

cancellation of leases has also occurred

in the United States so it's kind of

like okay got it you're going to move

more of the data centers to the United

States probably to you know also to some

extent B the need to the United States

Uh current federal regime which is

probably a good thing because we want

our data locally anyway uh even if it's

a little bit more expensive maybe we'll

get an upside of lower latency though

that I don't think that's a terrible

terribly big issue what's the difference

of a few milliseconds on your GPT

response I mean I suppose maybe for for

certain tasks a lot but you know this is

not like we're playing video games when

we're asking for J chat GPT to respond

to our generic encyclopedic responses or

inquiries anyway uh when coupled with

our prior Channel checks this now points

to a potential over Supply position for

Microsoft for data centers right our

Channel checks indicate Microsoft has

canel select data centers and leases uh

and has pulled back on conversions to

leases and pulled back on International

Market expansion so you've got multiple

things going on here I'm going read all

this word for word here but our checks

indicate that in some situations

Microsoft is using facility power delays

as a justification for termination in

other words you're looking for excuses

to terminate a contract recall as we

highlighted in our 2023 takeaways this

is the same tactic that meta used to

cancel multiple data center leases in

the United States after we learned in

our checks that meta had then canceled

$4 billion of capex programs related to

the

metaverse okay so now it's it's worth

noting and then they basically say two

weeks later meta ended up cutting their

guidance uh for capex now I just want to

be clear with a few things

here I'm not saying that Microsoft's not

going to spend this money in capex it

could just get reallocated to something

like humanoid robotics I actually think

all of the you know the big mag sevens

maybe you know some exception uh pretty

much all of them are going to get into

humanoid robotics uh and I mean this is

a sector that's that's just going to

blow up in time this is this is obvious

I don't know how soon we should actually

expect humanoid robotics especially if

there's a larger macro event uh that

that delays all this which is entirely

possible uh but uh I I would argue that

humanoid robots are going to be part of

our future

so is it possible then that we see this

sort of q1 confirmation of

capex transition to different forms of

capex

absolutely and is that going to be good

for other economies yes but then we want

a heads up on that okay so we're a

robotics companies we can invest into my

VC invested into robotics so everybody

who invested with me in that Venture

Capital fund you know we're we're in on

on humanoid robotics that said when it

comes

to the potential for slow down and capex

and then no offset that's worst case

scenario because now we're not looking

at okay well the money is just going to

go to different forms of chips it's

going to go to actuators it's going to

go to battery manufacturers uh and and

certain software plays it actually just

goes nowhere right we want money being

spent money sitting in a savings account

at Microsoft is not good for GDP it has

a velocity of like one in other words

it's spent one time goes in Microsoft

pocket Microsoft's pockets and then dies

that's really bad for GDP ironically the

biggest velocity Creator is the

government because it's so

wasteful the Mone actually circulates a

lot so you know if you're not getting

cutting via a lack of spending at some

of the big plays like Microsoft and the

government is cutting it's is not an

ideal scenario especially when the cape

Shiller index put you at you know pre

Great Depression and pre Doom bubble

valuations that said we're probably

going to bounce in markets tomorrow I I

would anticipate that uh unless there's

some kind of crazy news uh everything

over the weekend seems to have occurred

pretty much as expected uh German

elections uh and otherwise uh so I I

would anticipate some form of Bounce in

markets tomorrow and I think it's an

easy sort of bet to make unless there's

some bad news we get pce this week I

don't think that's going to be

particularly bad uh mostly because the

pce components from PPI and CPI were

actually pretty decent that'll carry

over to PC so I don't see that as a

problem and I don't see any kind of like

unemployment Catalyst I we really don't

get another jobs report until uh you

know two weeks from now so we've got

some time on that that's like one and a

half weeks from now uh but um I I

suppose what we want to pay attention to

is the potential for any kind of

downside announcements from these capex

companies so um let's see here let's

take a look at what else is happening

here so the article then goes on to say

that uh well they sort of give a little

precursor here and say hey you got two

weeks which by the way I should be Jet

rided by then which would be really cool

I'm actually in Florida right now in my

short shorts ready to go work out uh but

I'm in Florida because uh I'm doing my

multi-engine wrapping up my multi-engine

trading over here and then uh getting my

jet rating uh and uh yeah I mean that's

kind of cool uh but anyway at the same

time we're still going to be doing our

course member live streams over the next

few days uh and we've got that price

increase on the courses coming at the

end of this week so uh hop into those if

you haven't yet for uh my uh my signals

on fundamental analysis trade alerts

real estate analysis you name it we've

got some wonderful things there and some

new lectures coming out on trumponomics

but take a look at this why is this

happening says TD Cohen TD Cohen says

while we have yet to get to the level of

color via our Channel check so that we

would like to in why this is occurring

our initial reaction is that it is tied

to Microsoft potentially being in an

over Supply condition okay we we to know

that as we highlighted in our recent

takeaways we learned via Channel checks

that Microsoft walked away from multiple

deals as in early mid-stages of

negotiations on other deals that have

now been cancelled and let uh OnePlus

gws of ladds of intent on larger

footprint sites expire has also walked

away from at least five land projects

that it had under contract in multiple

tier one markets at the same time we

highlight the magnitude of potential

Data Center capacity and walked away

from and the decision to pull back on

land acquisition in our view indicates

the loss of a major demand signal for

micros

that was originally uh you know

responding to what we believed was a

shift in their appetite for capacity

tied to open AI which recent reports

seem to reiterate keep in mind open AI

has has just partnered with you know the

whole Stargate

project uh but uh we believe this

indicates a decision to pause

construction on data centers in

Wisconsin that was a big plant by the

way that was a big big big big deal uh

prior channel in checks indicated uh

those were designed or the Wisconsin

facility was designed to support open AI

so maybe somebody else was picking up

that contract instead of Microsoft but

anyway soft Bank who knows but there's

also a capacity that is likely procured

particularly in areas where uh capacity

uh blah blah blah blah okay basically

they think that there's a potential

Microsoft has some new internal forecast

that's like all right look we got plenty

if we need more we could just go rent it

from somewhere else because remember

this is not just Microsoft building out

their own Data Center capacity like you

could pick up excess capacity from other

uh data set of providers as well there

are plenty of them if you want to go

rent an h100 you can do that there are

plenty of providers just Google rent

h100 and you can kind of track prices

over time I actually recommend you make

a little spreadsheet and you just track

those prices over time and you can sort

of see what overall market demand versus

Supply is those

current excuse me per hour prices help

you keep your finger on sort of the

pulse of the market and they've been

declining because well now you've got

potentially better chips coming out

uh and everybody's been getting into

Data Center buildout so is all of it

really necessary not

necessarily and now the question is what

happens to the economy if Microsoft

pulls back Amazon you know and then that

opens the door to Amazon pulling back

which opens the door to meta pulling

back which reiterates why Apple didn't

blow all the money on the data centers

on commoditization in the first place

which then you know makes people wonder

okay is Elon Musk raising for xai at

Peak market prices probably

uh you know so I don't know you know

what does that then do to uh capex plays

like uh you know uh rack installation

companies rack providers qualcom

broadcom uh I mean the whole soft the

whole chip sack basically now you know

jansen's like oh you know investors got

the Jeep deep seek uh movement wrong

okay now we know we have Nvidia earnings

coming up and they're probably still

going to be okay I still maintain that

it'll probably take 6 to 12 months wants

to actually see a Slowdown but I guess

we'll see when the numbers come out

we'll certainly be covering them so

anyway uh that's what I've got for now

thank you so much for watching I find it

all very interesting and I look forward

to your commentary check out the courses

over at me kevin.com and we'll see you

in the next one thanks so much goodbye

and good luck