Microsoft is shelving plans for a $1 billion Ohio AI data center as analysts puzzle over relationship with OpenAI

Microsoft said it is “slowing or pausing” some of its data center construction, including a $1 billion project in Ohio, the latest sign that the demand for artificial intelligence technology that drove a massive infrastructure expansion might not need quite as many powerful computers as expected.

The tech giant confirmed this week that it is halting early-stage projects on rural land it owns in central Ohio's Licking County, outside of Columbus, and will reserve two of the three sites for farmland.

“In recent years, demand for our cloud and AI services grew more than we could have ever anticipated and to meet this opportunity, we began executing the largest and most ambitious infrastructure scaling project in our history,” said Noelle Walsh, the president of Microsoft's cloud operations, in a post on LinkedIn.

Walsh said “any significant new endeavor at this size and scale requires agility and refinement as we learn and grow with our customers. What this means is that we are slowing or pausing some early-stage projects.”

Microsoft didn't say Wednesday what other projects it has slowed outside of Ohio, but in late December it revealed it was pausing the later phases of a large data center project in Wisconsin.

Analysts with TD Cowen reported earlier this year that Microsoft was also scaling back some of its international data center expansion and canceling some leases in the U.S. for use of data centers operated by other companies.

Other analysts for months have tied some of the changes to a shift in Microsoft's close relationship with its business partner OpenAI, maker of ChatGPT.

“OpenAI was moving in one direction” by prioritizing the development of ever-more advanced AI systems, which require vast computing resources to train on troves of data, while “Microsoft may not have been moving that same direction,” said Craig Ellis, director of research at B. Riley Securities.

The two companies announced on Jan. 21 that they were altering the agreement that had made Microsoft the exclusive provider of OpenAI's computing power, enabling the smaller company to build its own capacity, “primarily for research and training of models.” It was the same day that newly inaugurated President Donald Trump touted OpenAI's partnership with Oracle and SoftBank to pledge $500 billion in new AI infrastructure in the U.S., starting with a data center in Texas.

Microsoft has long built data centers around the world to run its cloud computing services. The generative AI boom accelerated the demand for such facilities, both to train new AI systems and to keep them running as millions of people start using chatbots and other AI tools at work and home.

The computing it takes to run AI tools is expensive and requires a large amount of electricity — so much so that Trump this week cited AI needs as part of the justification for using his emergency authorities to boost the U.S. coal industry, a reliable but polluting energy source. Tech companies have also sought to tap into nuclear power, including a proposed Microsoft-backed revival of the shuttered Three Mile Island plant in Pennsylvania, which would feed an electricity grid supplying data centers in Ohio as well as Virginia, the nation's biggest data center hub.

Microsoft said it still plans to spend more than $80 billion globally to expand its AI infrastructure this fiscal year, which ends in June, and has already doubled its data center capacity over the past three years.

“While we may strategically pace our plans, we will continue to grow strongly and allocate investments that stay aligned with business priorities and customer demand,” Walsh said.

The Ohio pause nevertheless came as a disappointment to local officials.

Licking County has also attracted data center investments from Microsoft rivals Google and Meta Platforms and a highly anticipated semiconductor factory from Intel, though the struggling chipmaker in February pushed back the expected completion date for the project's first stage to 2030.

This story was originally featured on Fortune.com