Jan 16, 2026•12:30pm UTC

Microsoft swept into AI data center tsunami

hile Microsoft has traditionally been pegged as a software and cloud company, the tech giant is increasingly building a future around the deployment of data centers and the energy infrastructure required to support them.

On Thursday, Microsoft's funding partner BlackRock announced it had raised $12.5 billion to fund the buildout of data centers and their energy sources. This was part of a $30 billion pact the two companies signed in 2024 to collaborate on AI infrastructure. Nvidia also signed on to the partnership, as did xAI.

At the time the original deal was signed, Microsoft president Brad Smith said, “The investment opportunity is real and the investment need is even greater.” In an interview with Bloomberg, he called AI “the next general purpose technology that will fuel growth across every sector of the economy both in the United States and abroad.”

While the race to build AI factories in the US has turned into an all-out frenzy, two problems have emerged.

The first challenge is that the massive data center buildout is fundamentally based on the scaling laws that underpin the current AI boom. One of those tenets is that the more computing power you have, the more breakthroughs and progress you'll achieve. That's why companies are racing to scale up compute with new data centers. However, scaling laws have been called into question over the past six months. And one of the counter-trends in AI in 2026 is building smaller models and domain-specific models that are far more efficient, cost-effective, and can run on less demanding hardware. This could ease the demand for scaling compute.

The second is that AI data centers are facing community and political backlash. There's a growing perception in the U.S. that if giant data centers are built in your community, their power consumption will be passed on to consumers and raise energy bills. This issue has gotten so intense that U.S. President Donald Trump weighed in this week to say that Microsoft would make "major changes" to guarantee U.S. consumers don't have their utility bills increase because of data centers being built nearby.

Our Deeper View

It's commendable that Microsoft and the U.S. government acknowledge that the buildout of AI factories and next-gen data centers could raise U.S. consumers' power bills. Ultimately, they needed to take control of the narrative because people across the U.S. with slightly higher monthly bills were likely starting to blame it on AI, no matter the cause. But the fact is that AI and data centers are driving up overall energy demand, while energy supply hasn't increased — and that means higher prices. Plans are now in place to deploy more nuclear and clean energy, but those will take years to ramp up. The larger question of whether companies are overbuilding data center capacity because new breakthroughs will make AI models infinitely more efficient is an issue that the free market will have to sort out.