Microsoft Corp.’s data-center crunch will continue for longer than the company has previously outlined, undersc
oring the software giant’s struggles to keep up with cloud demand.
Many of Microsoft’s US data center regions are experiencing shortages of physical space or servers, according to people familiar with the company’s internal fo
recasts. New subscriptions for Azure cloud services are restricted in some crucial server-farm hubs, including N
orthern Virginia and Texas, through the first half of next year, said the people who requested anonymity to discuss internal forecasts.
That’s a longer time frame than the company has previously outlined. In July, Chief Financial Officer Amy Hood said c
urrent constraints would continue through the end of 2025. The lack of capacity affects machines running graphics processing units typically used for artificial intelligence
as well as data centers dominated by central processing units that have long been the workhorse chips for traditional cloud services, the people said.
Azure is Microsoft’s most important growth engine — the cloud unit generated more than $75 billion during the 2
025 fiscal year. Its expansion has outpaced its biggest rivals, Amazon.com Inc. and Alphabet Inc.’s Google.
A lack of servers to rent out to customers has been a recurring co
ncern for cloud providers in recent years. During the last six quarterly earnings calls, Microsoft has said it was unable to m
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eet all of its customers’ cloud demand. Amazon and Google have described similar constraints.
Related: Lack of Proper Insurance Coverage for Data Centers Presents Pitfalls
A Microsoft spokesperson said that a majority of Azure services and regions in the US “have available capacity so t
at existing customers with deployed workloads can continue to grow.” In some cases of unplanned demand spikes
, the company will introduce “capacity preservation methods” to balance customer demand across its data center fleet, the spokesperson said.
Azure customers select data-center regions based on physical proximity and what software is available. When a
preferred facility lacks space, Microsoft salespeople point customers toward others with capacity, according
to internal guidance. But these workarounds can increase complexity a
nd the amount of time it takes data to travel between a server farm and the customer, said people familiar with the work.
In some cases, customers experiencing Azure capacity issues take their business elsewhere, according to Ap
urva Kadakia, who helps companies set up cloud workloads as glob
al head of cloud and partnerships at Hexaware Technologies. Some t
ap multiple Azure regions or send only critical workloads to the cloud until more capacity is available, he said.
“Our teams periodically work with large customers to plan around demand spikes, like holiday periods,
to guide them to the most appropriate regions” and products, the Microsoft spokesperson said. “In unusual cases wher
e customers face increased cost or latency, Microsoft will compensate them for additional expense.”
Microsoft has been on a historic building spree to get data centers online — adding more than two gigawatts of ca
pacity over the last year, roughly equivalent to the power output of the Hoover Dam.
“It’s been almost impossible to build capacity fast enough since ChatGPT and GPT-4 launched,” Chief Technology Of
ficer Kevin Scott said in early October, referring to OpenAI’s popular chatbot and the AI model that runs it. “Even our most ambitious forecasts are just turning out to be insufficient on a regular basis.”
AI’s intense computing demands have fueled much of the need for new data centers. But Microsoft also face
s a crunch in demand for its traditional cloud infrastructure, which underpins applications and websites across the internet.