Key points
- Microsoft has partnered with Nebius to address capacity issues in its US East region, providing a much-needed boost to Azure customers.
- The deal will enable Nebius to deliver dedicated capacity to Microsoft from its new data center in Vineland, New Jersey, helping to meet the growing demand for AI services.
- This partnership allows Microsoft to spread its risk and accelerate time-to-market for data center capacity, while also diversifying its cloud infrastructure partnerships.
Microsoft has taken a significant step to address the capacity issues that have been plaguing its Azure customers in the US East region. The company has entered into a deal with Dutch provider Nebius, which will enable Nebius to deliver dedicated capacity to Microsoft from its new data center in Vineland, New Jersey. This move is expected to provide a timely boost to Azure customers who have been struggling with capacity problems in the region.
The capacity issues in Microsoft’s data centers have been a major concern for customers, with a major problem on July 29 being the latest in a series of challenges. The issue, which took more than a week to resolve, was caused by a shortage of resources, leaving customers unable to allocate resources for virtual machines. This highlights the importance of having sufficient capacity to meet the growing demand for AI services.
According to Dave McCarthy, research vice president at IDC, the problem of capacity issues is not limited to the US East region. Many AI vendors are facing similar challenges, including supply chain issues and difficulties in obtaining GPUs. McCarthy notes that the high growth demand for AI infrastructure has challenged all cloud providers, ranging from supply chain issues to the time it takes to make data centers operationally available.
The deal with Nebius is seen as an initial foray into the US AI market for the company. Arkady Volozh, founder and CEO of Nebius, believes that there are more contracts to come, and the company is expecting to secure significant long-term committed contracts with leading AI labs and big tech companies.
Jason Wong, distinguished VP analyst at Gartner, welcomes the agreement, stating that Microsoft customers will benefit from the additional capacity. He notes that the investment in Nebius is specific to US capacity, and will help service growing demand and meet peak customer loads.
The partnership allows Microsoft to spread its risk and accelerate time-to-market for data center capacity, while also diversifying its cloud infrastructure partnerships. Wong notes that hyperscalers like Microsoft simply can’t build data centers fast enough due to the constrained supply chain and regulatory hurdles. The deal with Nebius reflects Microsoft’s current approach, which prioritizes diversification and risk management.
As the demand for AI services continues to grow, Microsoft will need to reserve some capacity for future development, including the build-out of its own large language models (LLMs). McCarthy notes that cloud providers like Microsoft, AWS, and Google must decide how much capacity to reserve for R&D, while also prioritizing the needs of their customers. The partnership with Nebius is a significant step towards addressing the capacity issues in Microsoft’s US East region, and is expected to provide a much-needed boost to Azure customers.
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