Through the rapid growth of Azure, Microsoft's (MSFT, Financial) cloud platform for managing and running databases and applications, the tech giant is witnessing a surge in demand for data center infrastructure driven by AI. In its Q4 results reported in late July, MSFT noted that Azure's 30% revenue growth could have been higher if not for capacity constraints.
The challenge isn't conservative investment—MSFT's Q4 capital expenditures were $19 billion, nearly half of which was AI-related. The main issue is the inability to build and scale data centers quickly enough to meet demand. MSFT expects FY25 capex to exceed FY24 levels due to ramping infrastructure investments, recognizing the ongoing need for more data centers for itself and its cloud computing peers.
- Blackrock (BLK, Financial), the investment manager with $10.6 trillion in assets, is also recognizing this trend. It is collaborating with MSFT and NVIDIA (NVDA, Financial) to create a new investment vehicle for data centers and power infrastructure.
- BLK announced a new AI partnership with MSFT, Global Infrastructure Partners, and MGX through the creation of the Global AI Infrastructure Investment Partnership (GAIIP). NVIDIA will provide expertise in GPUs and AI data centers to help develop a robust AI ecosystem in the U.S.
- The GAIIP aims to raise $30 billion in private equity capital initially, with MSFT also investing. The partnership targets $100 billion in total investment potential, including debt financing.
- According to BLK, investors will have the opportunity for long-term returns, while hyperscalers like MSFT can allocate their capital to other areas.
This partnership appears to be a win-win for both BLK and MSFT. BLK is likely to attract new capital, and MSFT will benefit from expanded data center infrastructure in the U.S., potentially reducing its capex over time.
