Microsoft pauses $1 billion data center project — have tech giants overestimated demand for AI?

Microsoft has paused plans for a $1 billion data center project in central Ohio. The tech giant shared with the Columbus Dispatch that it is not moving forward with three planned data centers in Heath, Hebron, and New Albany.

Microsoft still owns the land in Ohio and the company plans to complete the project at some point in the future. In the meantime, two sites will be used for farming.

Microsoft confirmed that it will still fund upgrades to local roadways and other select infrastructure in the area.

"We will continue to evaluate these sites in line with our investment strategy," said a Microsoft spokesperson to The Columbus Dispatch. "We sincerely appreciate the leadership and partnership of Ohio government officials and the support of Licking County residents."

Microsoft also clarified that it will "continue to invest in and collaborate with local organizations to support digital skills development, restoration efforts, and to strengthen the communities in Licking County for future generations."

Is AI overhyped?

Microsoft has paused or pulled back from several data center projects, leading many to speculate that the company fears outpacing demand for AI.

Reuters reported recently that Microsoft has abandoned several data center projects across the United States and Europe over the last six months.

Recent developments in AI have changed the landscape, such as DeepSeek's quick success. That company's models were made with fewer resources than expected, which caused companies to reevaluate where to invest.

The $500 billion Stargate project will also affect demand for data center power from sources such as Microsoft.

A statement from Microsoft essentially says the company is meeting current demand for data centers, suggesting that investing billions in additional data centers would be unnecessary at this time:

"Thanks to the significant investments we have made up to this point, we are well positioned to meet our current and increasing customer demand. Last year alone, we added more capacity than any prior year in history. While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions. This allows us to invest and allocate resources to growth areas for our future. Our plans to spend over $80bn on infrastructure this FY remains on track as we continue to grow at a record pace to meet customer demand."

A TD Cowen report discusses Microsoft's recent moves related to data centers. The report asks if Microsoft has an excess of data center capacity.

But DataCenterDynamics highlights that some analysts disagree and believe Microsoft's maneuvers are "business as usual."

“A company this large and with $80 billion of annual spend has the right to move in and out of data center leases, many of which were never officially signed," said Jordan Klein, a Mizuho Securities analyst.

Microsoft still plans to spend more than $80 billion on infrastructure before the end of the current financial year. But that spending won't be on data center projects like the one paused in Ohio.