Alibaba warns of potential bubble in data centers

Alibaba Chairman Joe Tsai has raised concerns about a possible bubble in data center construction. He believes that the rapid pace of building these facilities may exceed the actual demand for AI services. Tsai spoke at the HSBC Global Investment Summit in Hong Kong. He noted that many new data centers are being built without clear customers in mind. This trend is being seen globally, with major tech companies and investment funds rushing to establish server bases, but without certainty about who will use them. Tech giants like Microsoft and SoftBank are investing heavily in chips necessary for AI development. Alibaba itself plans to invest over 380 billion yuan, or about $52 billion, in AI over the next three years. Meanwhile, in the US, President Donald Trump is promoting a significant AI infrastructure project with an estimated cost of $500 billion. Recently, Alibaba's shares fell by over 3%. Investors are increasingly questioning the sustainability of heavy spending on AI, especially after a Chinese company, DeepSeek, announced a cost-effective AI model that competes with US technology. Most importantly, critics point out that there are still few practical applications for AI in the real world. Tsai warned viewers that many new projects are raising funds without having confirmed usage agreements. He emphasized his concern when companies build data centers on speculation. This warning comes amidst significant investments in AI infrastructure, with Amazon, Alphabet, and Meta pledging large sums to their AI projects. Despite Microsoft's claims of increasing spending, some analysts have noted that the company may have canceled certain data center leases. Tsai highlighted the vast amounts being discussed for AI investments in the US and expressed skepticism about whether such spending is necessary at this time. He believes that companies may be investing in anticipation of future demand that has not yet materialized.