(March 25): Alibaba Group Holding Ltd chairman Joe Tsai warned of a potential bubble forming in data centre construction, arguing that the pace of that build-out may outstrip initial demand for artificial intelligence (AI) services.

A rush by big tech firms, investment funds and other entities to erect server bases from the US to Asia is starting to look indiscriminate, the billionaire executive and financier said. Many of those projects are built without clear customers in mind, Tsai told the HSBC Global Investment Summit in Hong Kong on Tuesday.

From Microsoft Corp to SoftBank Group Corp, tech firms on both sides of the Pacific are spending billions of dollars buying the Nvidia Corp and SK Hynix Inc chips crucial to AI development. Alibaba itself — which in February declared it was going all-in on AI — plans to invest more than 380 billion yuan (US$52 billion or RM232.35 billion) over the next three years. Server farms are springing up from India to Malaysia, while in the US, Trump is touting a Stargate project that envisions an outlay of half a trillion dollars.

Alibaba shares slid more than 3% in Hong Kong on Tuesday. Many on Wall Street have begun to question that spending, especially after Chinese upstart DeepSeek released an open-source AI model that it claims rivals US technology but was built at a fraction of the cost. Critics have also pointed out the persistent dearth of practical, real-world applications of AI.

“I start to see the beginning of some kind of bubble,” he told delegates to the summit. Some of the envisioned projects commenced raising funds without having secured “uptake” agreements, he added. “I start to get worried when people are building data centres on spec. There are a number of people coming up, funds coming out, to raise billions or millions of capital.”

Alibaba is mounting a comeback in 2025, thanks in part to the recent popularity of its Qwen-based AI platform, which it envisions boosting Alibaba’s core commerce business as well as cloud services. At the summit, Tsai talked about how Alibaba was undergoing a “reboot” and rehiring after years of regulatory scrutiny that crimped growth. It has initiated programmes to acquire the AI talent it needs to further its stated ambition of exploring artificial general intelligence.

At the same time, Tsai had choice words for his US rivals, particularly with their spending.

Just this year, Amazon.com Inc pledged to spend US$100 billion on AI infrastructure, followed by US$75 billion by Alphabet Inc, and Meta Platforms Inc, which pledged up to US65 billion.

But in February, TD Cowen analysts cited signs that Microsoft has cancelled some leases for US data centre capacity, raising concerns over whether it is securing more AI computing capacity than it needs in the long term. 

Its executives have played down those concerns, saying Microsoft is spending more than it ever has in its history, outlays that mostly go towards chips and data centres. The US company has said it expects to spend US$80 billion this fiscal year on AI data centres, but that pace of spending growth should begin to slow in the year starting July.

“I’m still astounded by the type of numbers that’s being thrown around in the US about investing into AI,” Tsai told the audience.

“People are talking, literally talking about US$500 billion, several 100 billion US dollars. I don’t think that’s entirely necessary. I think in a way, people are investing ahead of the demand that they are seeing today, but they are projecting much bigger demand.”

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