Get Ahead of the AI Data Center Profit Surge

Colin’s Note: If you were paying close attention to Microsoft’s earnings report last week, one figure in particular might’ve caught your eye…

The tech giant reported artificial intelligence (AI) services contributed 7% growth to its Azure data center business… up just 1% from the previous quarter.

Yet Microsoft is still set to up its data center spending by 50% this year… And that’s because there’s more to the story than just a single percent of growth.

As the AI megatrend gains traction, the data center spending surge is heating up in earnest… and if you’re not already invested, now is the time to get in.

It’s all in today’s video. Just click below to watch.

Bleeding Edge subscribers, welcome back.

One percent.

That’s how much growth Microsoft saw in its artificial intelligence (AI) business over the last quarter. Just a single percent of growth.

As most of you know, Microsoft reported its earnings last week. Most of the attention was on the company’s Azure data center business. It serves, more or less, as a hub for virtually everything Microsoft is doing in AI.

Back in December, the company reported AI services contributed 6% growth to the Azure business. This quarter, it was only 7% growth. That’s a sequential growth of only 1% in AI server demand.

Meanwhile, Microsoft is on track to increase its spending on its AI data centers by 50% this year to a whopping $50 billion.

All this spending for just 1% AI growth over the past three months.

There must be more to this. And good news, there is. During the conference call, Microsoft executives revealed something rather extraordinary.

In an era of cloud computing and downloadable software, there’s rarely been a time when demand has outstripped supply.

Occasionally you’ll have websites that crash because of a surge in traffic. But it’s usually a temporary occurrence. That’s because over the past decade or so, companies like Microsoft, Amazon, and Google, have invested billions of dollars in cloud computing infrastructure. It makes these outages somewhat of a rare occurrence.

But if you’ve been keeping up with the AI data center trends, you know that AI is different. Instead of relying on common CPUs, AI applications rely on purpose-built GPUs, primarily designed by Nvidia.

With AI only taking off in popularity over the past year, data center providers are still playing catch-up. Microsoft admitted that. On the earnings conference call, CFO Amy Hood said, “Right this minute, we do have demand that exceeds our supply by a bit.”

Microsoft is seeing such high demand for its AI services, the company doesn’t have enough server capacity to even keep up.

I know I’ve been pounding the table on AI here in this newsletter for a while now. It’s not like I don’t have the expertise to discuss other ideas and sectors.

But none of them present the opportunity we’re seeing right now in the AI data center.

Companies like Google, Microsoft, Amazon, and Meta have committed to spending hundreds of billions of dollars on data centers just over the next couple of years. If you start looking out five to 10 years, you’re talking a trillion dollars.

This is dramatically up… as much as 50% higher than before. And it’s not just in hopes of catching the AI trend. These companies are spending hundreds of billions of dollars because of overwhelming demand for AI products and services.

A recent survey of chief financial officers or CFOs revealed that companies are turning to AI to save money. Nearly half of the CFOs in the survey said they’re prioritizing investments in technology over job cuts as the primary solution for cutting expenses in the coming year.

In this environment where consumers and companies are uncertain how long inflation will last – and how long interest rates will remain higher for longer – AI is one of the few certain ways to cut costs without having to lay off valuable employees.

And I know I’ve said this before, but I want you to profit from this megatrend. Because one thing is certain… there’s no way to know how long this AI data center spending will last, but it will end at some point.

That’s why I suggest, at the very least, having some additional exposure to the semiconductor industry inside of your portfolio. That would be as simple as adding the SMH ETF or the SOXX ETF. Both hold a basket of the most valuable and most popular semiconductor companies.

With Microsoft seeing AI demand outpace supply, you know these companies are going to err on the side of overspending in the coming months. That means semiconductor demand will remain high for the foreseeable future.

That was The Bleeding Edge for today. A lot of fun stuff coming later this week, and I’ll see you then.

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