Microsoft Forecasts Show Persistent Data Center Crunch: What Does this Mean for AI?

In Focus

• Microsoft forecasts data center shortage will extend past December 2025
• Storage issues affect Microsoft’s data center regions across the U.S.
• Tech giant has restricted new Azure sign-ups in Northern Virginia and Texas

Microsoft’s forecasts show data center crunch will persist longer than it initially stated. According to Yahoo Finance, the data center shortage means the software giant is struggling to keep up with the growing demand for cloud services.

Restricted New Azure Cloud Sign-Ups

Sources close to the software giant’s internal plans say Microsoft is facing storage issues in data center regions across the U.S. as it struggles with server shortage or limited physical space.

Microsoft has already restricted new sign-ups for Azure cloud servers in major data center locations like Texas and Northern Virginia until mid 2026. This timeline is longer than Microsoft had anticipated. In July 2025, its Chief Financial Officer Amy Hood said the current constraints were due to rising demand and that the data center crunch would persist until the end of 2025.

“I talked about it in January and said I thought we’d be in better supply-demand shape by June. And now I’m saying, “I hope I’m in better shape by December.” Hood said in July 2025.

Microsoft’s data center crunch affects computers that run graphics processing units used to power AI and regular processors that handle most of the conventional cloud services.

Microsoft’s Approach to Handling Cloud Service Demand Surge

While acknowledging cloud space constraints, Microsoft’s spokesperson said most Azure services and regions across the U.S. “have available capacity so that existing customers with deployed workloads can continue to grow.”

The spokesperson added that the company will adopt capacity preservation approaches to balance client demand across its cloud infrastructure in the event of unplanned demand surges.

Microsoft allows Azure customers to pick data center locations based on the software available and physical proximity. If a customer’s preferred data center lacks space, the company directs customers to facilities that have capacity. The workarounds involved in this approach increase complexities and extend data transfer time.

How Microsoft Azure Cope with Cloud Space Shortage

Some customers who experience Azure capacity issues have moved their business to other cloud providers. Others have opted to leverage multiple Azure regions, or use the cloud for critical workloads only until additional capacity becomes available. The software giant says it works with customers to plan for demand surges.

“Our teams periodically work with large customers to plan around demand spikes, like holiday periods, to guide them to the most appropriate regions. In unusual cases where customers face increased cost or latency, Microsoft will compensate them for additional expenses,” The Microsoft spokesperson said.

Azure is Microsoft’s main cloud service growth engine. In the 2025 fiscal year, the cloud unit generated over $75 billion in revenue. The growth of this unit has surpassed Microsoft’s biggest competitors like Google and Amazon.com. Microsoft expanded cloud services to India in January 2025.

Microsoft’s Data Center Crunch at a Glance:

• Microsoft struggles with server shortage or limited physical space in U.S. data centers
• Data center crunch affects both GPU-based and CPU-based computers
• Microsoft adopts capacity preservation approaches to balance cloud space demand
• Software giant added to gigawatts of capacity in 2024

AI Pushes Demand for Cloud Computing

Demand for computing to support AI is driving the need for new data centers.
As part of Microsoft cloud growth strategy, the tech giant has been building data centers and getting them online. Last year alone, the software giant added over two gigawatts of capacity.

“It’s been almost impossible to build capacity fast enough since ChatGPT and GPT-4 launched. Even our most ambitious forecasts are just turning out to be insufficient on a regular basis.” Chief Technology Officer Kevin Scott said.

Microsoft’s conventional cloud infrastructure, which supports websites and applications across, is also experiencing shortage. OpenAI remains Microsoft’s largest CPU-based cloud service client despite losing cloud exclusivity deal. The company requires significant computing resources to support its own applications and workloads.

Microsoft has reported inability to meet cloud service demand in six quarterly earnings calls. Its competitors, Google and Amazon, have also cited similar concerns.