Microsoft Commits $33 Billion to “Neocloud” Providers to Address AI Infrastructure Shortage

Key Takeaways

Microsoft has inked more than $33 billion in commitments to neocloud providers, including Nebius, CoreWeave Inc., Nscale and Lambda, representing a fundamental shift in how the technology giant addresses surging demand for artificial intelligence computing power.

The largest of these agreements is a deal with Amsterdam-based Nebius Group worth up to $19.4 billion, which will provide Microsoft with access to more than 100,000 of Nvidia's latest GB300 chips.

The agreement includes a base value of at least $17.4 billion through 2031, with options that could increase the total by as much as $2 billion.

Nebius announced the multi-year agreement on September 8, 2025, stating it would deliver dedicated capacity to Microsoft from its new data center in Vineland, New Jersey starting later this year.

The announcement sent Nebius shares soaring, with the stock climbing approximately 60% in extended trading following the disclosure.

Strategic pivot to address data center shortage

Neoclouds are a new category of small infrastructure providers that lease out AI-focused computing power, and Microsoft's deals demonstrate the company's growing willingness to use relative newcomers for important infrastructure.

The strategy addresses a critical bottleneck: Microsoft is struggling to bring sufficient computing capacity online fast enough to meet demand. Renting access to servers from Neocloud speeds things up since they have already solved logistical challenges, including obtaining sufficient power and chips.

"We are in very much land-grab mode in the AI space," said Scott Guthrie, who leads Microsoft's cloud efforts. "We've made the decision that we don't want to be constrained in terms of capacity."

The approach allows Microsoft to reserve its own data centers for lucrative customer-facing AI services. Microsoft is freeing up capacity in its own data centers for cloud clients by running some computing for internal and OpenAI work at neocloud facilities, Guthrie said.

Internal workloads already running on external infrastructure

The first foundation AI models built under consumer AI chief Mustafa Suleyman were trained at a CoreWeave data center near Portland, Oregon, according to people familiar with the work.

This confirms Microsoft is running substantial internal projects on external infrastructure, not just using Neoclouds for supplementary capacity.

Beyond model training, recent deals with Nscale in the UK and Norway will help Microsoft deliver AI services in those regions, Guthrie said.

The company also previously announced it would rent capacity from Oracle to offer an AI-enhanced version of the Bing search engine.

Financial and operational advantages

The neocloud strategy offers Microsoft more than just additional computing power. Renting data center access gives Microsoft more financial flexibility, allowing the company to categorize some costs as operational expenses rather than capital costs, which offers potential benefits for cash flow, taxes, and the way profit is reported to Wall Street, said Bernstein analyst Mark Moerdler.

Neocloud deals also let Microsoft pivot more quickly than when operating its own data centers, Moerdler added.

Microsoft Leads Competitors in Neocloud Adoption

Rival cloud services companies, such as Amazon.com Inc., haven't announced work with neoclouds to the same degree as Microsoft. Google has rented some capacity from CoreWeave as part of its work with OpenAI, according to Reuters, but Microsoft's commitments dwarf those of competitors.

Guthrie pointed to surging AI demand from both Microsoft products, such as GitHub Copilot, and from OpenAI, which has hundreds of millions of ChatGPT users.

"Amazon doesn't have anywhere near that scale. Nor does Google, in terms of total users with intensity, especially during business hours," he said.

Continued investment in owned infrastructure

Despite the massive neocloud commitments, Microsoft continues aggressive spending on its own facilities.

On Tuesday, Microsoft announced a second phase of development at a data center in Racine, Wisconsin.

The expansion will bring the training-focused site's total utility power capacity to at least 900 megawatts, according to people familiar with the plans, almost as much power as is produced by a typical nuclear reactor.

Guthrie said Microsoft will continue to tweak its infrastructure plans, accelerating or pulling back on certain projects or regions as it adjusts to demand and regulations.

The neocloud strategy represents a hybrid approach to infrastructure that may define how major technology companies address the unprecedented computational demands of the AI era.

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