Microsoft has found a potential solution to the capacity issues that have been affecting its Azure cloud service, particularly in the US East region. To address increasing customer demand, Microsoft has formed a partnership with Nebius, a Dutch provider, which will supply dedicated capacity from its new data center in Vineland, New Jersey over the next five years. The agreement includes provisions for additional capacity as needed.
Recently, Azure encountered significant capacity problems, notably an incident on July 29, where customers faced challenges in allocating resources for virtual machines. This issue, which took over a week to resolve, was part of broader challenges faced by cloud providers across the eastern United States due to the surge in demand for AI services and infrastructure.
Dave McCarthy, research vice president at IDC, noted that these capacity struggles extend beyond the US and are affecting many AI vendors globally. Supply chain challenges, especially concerning GPUs and data center capacity, are part of the problem.
The deal with Nebius marks the company’s entry into the US AI market, according to Arkady Volozh, Nebius’s founder and CEO. He indicated that they anticipate securing additional long-term contracts with significant technology firms.
Gartner’s Jason Wong commented that Microsoft’s Azure customers will likely welcome this agreement. He emphasized that the investment in Nebius aims to enhance US capacity to better serve growing customer demands, especially after the East US Region’s shortfall in July.
McCarthy explained that Microsoft plans to utilize this additional infrastructure for customers and its internal research and development. However, he cautioned that while the new capacity may alleviate problems on the East Coast, it won’t necessarily meet all customer needs due to the distributed nature of AI workloads.
This new partnership suggests that Microsoft will not be focusing on expanding its own data centers to accommodate this capacity increase. Earlier this year, the company had announced it would not proceed with plans to build new data centers despite the rising demand for AI services.
Wong further noted that this collaboration allows Microsoft to mitigate risks while speeding up the time-to-market for additional capacity, particularly given the challenges of quickly building data centers amid supply chain constraints and regulatory issues. He recognized the Nebius deal as a strategic move that diversifies Microsoft’s cloud infrastructure options.
Finally, he mentioned that while focusing on capacity for AI, Microsoft and other cloud providers must also consider how much capacity to reserve for their own research and development needs, unlike newer entrants that are prioritizing direct customer service.
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