Alibaba exec warns of overheating AI infrastructure market

Alibaba is warning of a datacenter spending "bubble" amid the rush to build infrastructure in anticipation of an AI feeding frenzy.

Speaking at the HSBC Global Investment Summit in Hong Kong this week, Alibaba Group co-founder and chairman Joe Tsai expressed concern at the amount of funding being allocated to datacenter construction for AI development, saying it looks set to exceed actual market demand.

"I start to see the beginning of some kind of bubble," said Tsai, who noted some of the projects are raising investment to build datacenters on spec, meaning they don't even have a buyer or tenant lined up before going ahead.

Tsai's unease is based on the billions being committed by mega-corps, especially in the US. In January, Microsoft alone indicated its intention to invest $80 billion this year on building out its AI infrastructure, while Meta said it plans to pour $60-65 billion into more resources, and the Stargate Project said it expects to lay out as much as $500 billion over the next four years.

AI investments in America seem to be outpacing current demand, Tsai cautioned.

However, Alibaba itself also announced last month that its digital infrastructure splurge over the next three years will exceed the total it laid out in the prior decade, although the e-commerce and cloud giant did not specify exact investment figures.

Warning signs of overheating datacenter expenditure emerged last month when financial services biz TD Cowen published a report claiming Microsoft is rowing back on leases for datacenter capacity it intended to take out after finding itself "in an oversupply position."

In January, Gartner said businesses were uncertain about the benefits of investing in AI, and CIOs were beginning to question the assumption that AI would lead to a transformation, forecasting that 2025 "is going to be a year of the slide."

According to recent figures from IDC, revenue earned from selling servers increased by 91 percent year-on-year in 2024, while for servers with an embedded GPU for AI processing it was an even greater jump of 192.6 percent.

Despite mounting concerns that this level of infrastructure investment may be unsustainable, some industry watchers do not foresee a slowdown any time soon. Analyst Omdia has just raised its 2025 datacenter capex estimate from $561 billion to $576 billion, and the spending outlook for hyperscale cloud companies alone indicates capex could grow by more than 30 percent this year.

However, Omdia did note that analysis of multibillion-dollar project announcements such as those from Crusoe, CoreWeave, Oracle, and OpenAI suggest individual parties may be claiming joint spend as their own capex or lumping capex and opex into spend predictions, which may be inflating the figures. ®