March 27, 2025

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AI Landscape Shifts as Microsoft Pulls Back on Data Centers and Investors Demand Returns

The recent developments in the tech world have been marked by significant shifts in the artificial intelligence (AI) landscape, with companies like Microsoft and Google making strategic moves to adapt to changing market dynamics. As investors become increasingly cautious about costly AI pursuits, the scrutiny on returns on investment has intensified. Meanwhile, the emergence of budget-friendly AI alternatives, such as DeepSeek, has forced Western companies to reassess their strategic investments and long-term prospects.

Microsoft Pulls Back On Data Centers As AI Investments Face Scrutiny

Microsoft has put its data center expansions in the US and Europe on hold, citing an oversupply dilemma and excess capacity that doesn't align with its usage predictions. This strategic pullback involves deferring and canceling leases in existing data centers, driven in part by Microsoft's decision not to support additional AI workloads for OpenAI. The company still plans to invest over $80 billion in AI and cloud infrastructure this fiscal year. As Microsoft steps back, the void is being filled by Google and Meta, which are making headway in international and US markets, respectively. This development reflects significant implications for international rivalry in AI tech, with Western companies needing to reassess strategic investments and their long-term prospects.

European Investors Say Clock Is Ticking For AI Adopters To Deliver

European companies that have spent heavily on generative artificial intelligence need to start showing returns on their investments by next year, or risk losing investor patience. While many investors are bullish about the potential of AI to boost productivity and profits, some are becoming more choosy, preferring shares of companies that adopt AI technology over those that supply hardware to the industry. Chipmaker Nvidia has become almost synonymous with the AI boom, but its shares were hit hard by the rollout of DeepSeek's AI model, which requires fewer of Nvidia's pricier chips. Investors are eager to see concrete applications and financial gains from AI investments, and companies like SAP and RELX are being scrutinized for their significant AI investments.

Investor Patience Wears Thin As AI Must Prove Its Worth

European tech giants like SAP and RELX are under pressure to deliver returns on their significant AI investments by next year. The tech world took a turn when DeepSeek unveiled its budget-friendly AI model, sparking a tech selloff and casting doubt on AI-focused stocks. Investors are now showing a preference for firms like SAP and RELX that weave AI into their operations, sidelining hardware makers like Nvidia. The shift hits chipmakers hard, as DeepSeek's model slashes demand for pricey chips. According to Fidelity, broad AI profitability might not be seen until 2025, yet the pressure is on firms to deliver financial gains by 2026.

AI Return On Investment Reached Just 2.5% Last Year

The average return on investment for AI-focused investments was just 2.5% in the last year, with AI investment outperformed by other industries and general funds. Despite attracting an estimated $110bn in global investment in 2024, AI companies had seen a strong run in their share prices, tempting investors away from core principles like diversification. However, the tides may be changing, with companies integrating AI into their operations seeing returns on productivity and ROI. The AI investment landscape has also seen a shakeup after the introduction of DeepSeek's AI chatbot, which offers similar capabilities to OpenAI's GPT models with a much smaller price tag and associated power requirements.

SenseTime Loss Worse Than Expected As AI Race Heats Up

SenseTime, a Chinese AI tools developer, reported a wider-than-estimated net loss for the full year, as the company continues to grapple with rising competition in a crowded market. The company's net loss of 4.3 billion yuan ($592 million) in 2024 was higher than expected, despite the company slashing staff, marketing, and traveling expenses. SenseTime's losses have narrowed from a year earlier, but the company still faces significant challenges in the competitive AI market.

AI Infrastructure Stocks Fall As Microsoft Scraps Some Data Center Plans

Stocks tied to artificial intelligence infrastructure fell after Microsoft scrapped some of its data center plans, with the company backing out of projects slated to use more data center capacity. The move is seen as a response to changing market dynamics and the emergence of budget-friendly AI alternatives like DeepSeek. Microsoft's decision may have a ripple effect on the AI infrastructure market, with companies like Google and Meta potentially benefiting from the shift.

OpenAI Does Not Expect To Be Cash-Flow Positive Until 2029

OpenAI, the San Francisco-based artificial intelligence company, does not expect its cash flow to turn positive until 2029, according to a report. The company is grappling with significant costs from chips, data centers, and talent needed to develop cutting-edge AI systems. Despite this, OpenAI expects its revenue to surpass $125 billion by 2029, with the company forecasting revenue of $12.7 billion in 2025. OpenAI has introduced a range of subscription offerings for consumers and businesses, and its paying business users have more than doubled since its last update in September.

Rising Stars: 3 AI Stocks To Watch In The Quantum Computing Space

Several AI stocks are poised to dominate the quantum computing market in the long run, including IBM, Alphabet, and Nvidia. These companies are building the future in two cutting-edge fields simultaneously, with IBM boasting the largest quantum computing fleet in the world and Nvidia focusing on bridging classical and quantum computing. The companies' stocks may be undervalued, with Nvidia's stock looking affordable after a recent sell-off. IBM's shares are found in the same valuation range, trading at 21.7 times earnings, while Alphabet's stock has been driven by its AI features and quantum computing expertise.

Hold Nvidia? Here Are 2 Unstoppable AI Stocks You Can Also Buy

Nvidia remains a foundational AI stock that investors can build a portfolio around, despite the market overreacting to sell off the growth stock. The company's connection to AI comes from its critical digital infrastructure technologies used in data centers, and its stock is now less expensive than many of its big tech peers. Other AI stocks, such as Vertiv Holdings and Nebius Group, stand out as exciting opportunities, with Vertiv's critical digital infrastructure technologies used in data centers and Nebius's advanced AI infrastructure. These stocks may be flying under the radar, but they offer investors a chance to benefit from the growing demand for AI infrastructure.

Key Takeaways

  • The AI landscape is undergoing significant shifts, with companies like Microsoft and Google making strategic moves to adapt to changing market dynamics.
  • Investor patience is wearing thin, with European companies under pressure to deliver returns on their significant AI investments by next year.
  • The emergence of budget-friendly AI alternatives like DeepSeek has forced Western companies to reassess strategic investments and long-term prospects.
  • AI infrastructure stocks like Nvidia, Vertiv, and Nebius offer exciting opportunities for investors, despite the market overreacting to sell off growth stocks.
  • The quantum computing market is poised for growth, with companies like IBM, Alphabet, and Nvidia building the future in two cutting-edge fields simultaneously.
  • Investors should keep an eye on the AI market, with the potential for significant returns on investment in the long run.

Sources

Artificial Intelligence AI Investments Microsoft Google DeepSeek AI Infrastructure