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Blackstone Remains Committed to Data Center Investments Despite DeepSeek Concerns

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Blackstone reaffirmed its commitment to data center investments on Thursday, dismissing concerns that the rise of DeepSeek’s low-cost AI models would weaken demand for physical infrastructure. The alternative asset manager, which holds $80 billion in leased data centers, emphasized its “prudent approach” and strong partnerships with major global companies.

Data centers remain critical for AI development, providing the infrastructure needed to store, process, and analyze massive datasets. While investors previously saw data centers as key beneficiaries of AI growth, DeepSeek’s unexpected emergence has sparked debate over whether lower-cost AI models could reduce demand for such facilities.

Blackstone’s President and Chief Operating Officer Jonathan Gray addressed these concerns in a post-earnings call, stating that while the company is monitoring DeepSeek’s impact, lower AI costs could actually drive broader adoption, ultimately increasing data center demand. “As usage goes up significantly, there’s still a vital need for data centers. We still think it’s a very important segment,” Gray said.

Analysts at Jefferies echoed this sentiment, arguing that hyperscale cloud providers are unlikely to cut capital expenditures given the intensifying competition in AI. Tech giants such as Microsoft and Meta have also defended their aggressive AI spending, insisting that substantial investment is necessary to remain competitive.

Despite Blackstone’s confidence, its shares fell nearly 4% in afternoon trading, reflecting investor caution amid the evolving AI landscape.

 

Microsoft Shares Drop as Cloud Outlook Disappoints, Meta Gains on AI Optimism

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Microsoft saw its shares tumble 6% on Thursday after its artificial intelligence (AI) investments failed to significantly boost cloud revenue. Meanwhile, Meta’s stock rose 4% as CEO Mark Zuckerberg reassured investors of strong growth potential, calling 2024 a “really big year.”

Both tech giants defended their heavy AI spending following concerns sparked by Chinese AI startup DeepSeek’s recent advancements in low-cost AI models. However, while Meta continues to show strong ad revenue growth—justifying its AI investments, according to Evercore analyst Mark Mahaney—Microsoft’s Azure cloud platform has struggled.

Microsoft missed market estimates for Azure’s quarterly revenue growth and provided a third-quarter forecast below expectations. The company had previously promised a second-half rebound, but analysts now express skepticism.

“The second-half re-acceleration story for Azure is not playing out,” said Barclays analyst Raimo Lenschow, adding that Microsoft prioritized AI workloads over core Azure functions, delaying the expected growth recovery.

For Meta, a stronger-than-expected 21% revenue increase eased investor concerns about Zuckerberg’s aggressive AI spending plans, which could reach $65 billion this year. Analysts remain bullish, with Barton Crockett of Rosenblatt stating that “Meta might have more benefits to show from AI than anyone.”

At least 15 brokerages raised their price targets on Meta, which saw a 65% stock gain in 2023, the largest among Big Tech firms. The stock’s rally was set to add over $80 billion to its market value.

Conversely, Microsoft was on track to lose about $182 billion in market capitalization. J.P. Morgan analyst Mark Murphy noted that Microsoft “did not recommit to its Azure second-half outlook the same way it did 90 days ago,” weakening confidence in the company’s cloud growth trajectory.

 

Microsoft Shares Slide After Disappointing Cloud Forecast and AI Spending Worries

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Microsoft’s shares dropped 4.5% in after-hours trading on Wednesday after the company issued a disappointing growth forecast for its cloud computing business, particularly Azure. Despite exceeding sales expectations for the fiscal second quarter, investors expressed concerns about the company’s large spending on artificial intelligence (AI) and the potential competition from cheaper AI models emerging from China.

The cloud unit, Azure, reported 31% growth in the quarter, falling short of Wall Street’s expectations of 31.8%. Microsoft’s capital expenditures were also higher than analysts anticipated, reaching $22.6 billion, compared to the forecasted $20.95 billion.

Although Microsoft’s AI investments have led to improved performance, including a 10-fold better price-to-performance ratio, analysts are looking for clearer evidence of monetization. Despite being optimistic about AI’s future potential, Microsoft CEO Satya Nadella acknowledged that the company is still in the early stages of realizing profits from these technologies.

The rise of DeepSeek, a Chinese AI startup, has intensified concerns about increased competition in the AI market, potentially leading to a price war. Microsoft has already added DeepSeek’s AI models to its Azure offerings, highlighting the growing pressure from rivals offering cheaper AI alternatives.

However, Microsoft remains a strong player in the AI space, securing new Azure contracts, including those with OpenAI, which has helped the company achieve significant commercial bookings growth of 67%. Microsoft’s total revenue for the fiscal second quarter was $69.6 billion, reflecting a 12% increase, while earnings per share were reported at $3.23, surpassing analyst expectations of $3.11.

Despite the uncertainty surrounding AI spending and competition, Microsoft continues to be viewed as a key player in the AI sector, with its stock rising 8% over the past year, although trailing behind competitors like Alphabet and Amazon in performance.