Business Insider reported Tuesday that Amazon is purchasing billions of dollars of Nvidia AI hardware, but electricity shortages have left some new server racks in warehouses. Internal emails showed Amazon expected to receive Nvidia AI server systems worth $5 billion in August. The emails showed Amazon expected another $3 billion of systems each month afterward. Amazon did not say how long the purchases would last.
Amazon established an "Early Rack Receipt" program to secure Nvidia chips amid intense competition, including before data centers are ready. Amazon previously took ownership only after equipment reached Amazon's data centers. Amazon now pays sooner, even when servers must remain in warehouses until electricity becomes available. Business Insider reported that some sites have room for racks but lack adequate power. One supply-chain team did not know when the Nvidia servers the team was receiving would be installed and operational.
Amazon described placing hardware near deployment locations as "best business practice". Amazon rejected suggestions that AWS lacked an overall deployment plan. The value of Amazon's idle equipment is unknown. Servers without power generate no revenue. Deployment delays may reduce the time before newer chips make the equipment less competitive.
A separate Business Insider investigation reported that AWS CFO John Felton joked with infrastructure chief Prasad Kalyanaraman at an internal September meeting. "You've taken us free cash flow negative as a company, so congratulations," Felton said. Kalyanaraman called Amazon's AI business "hugely free cash flow negative". Kalyanaraman expected Amazon's free cash flow to stay negative for another couple of years. Amazon plans to spend $220 billion on capital investment across the company this year. Amazon's free cash flow declined to negative $7.6 billion in the 12 months through June 30, compared with positive $18.2 billion a year earlier.
AI skeptic Ed Zitron estimated in September that AI chips worth $200 billion to $300 billion could be stored in warehouses or data centers without power. Zitron attributed the possible buildup to companies purchasing equipment faster than the companies can deploy the equipment. Business Insider's findings at Amazon provide concrete evidence of the problem Zitron described.
Polymarket traders assign a 10% probability to an AI bubble bursting by December 31, compared with 6% several days earlier. The probability reaches about 22% for June 30, 2027, although that contract has attracted only $35,000 in trading. A "Yes" outcome requires three specified industry stress events within 90 days. Chips lacking power do not qualify on their own.
AWS increased second-quarter revenue by 37% to $42.2 billion. AWS's backlog reached $496 billion. Felton said AWS AI servers recover their cost in less than three years. Felton argued that demand warrants the spending. Morgan Stanley warned that U.S. data centers face a 32-gigawatt electricity shortfall through 2028. The projected shortfall raises questions about how soon purchased hardware can generate revenue.
Amazon's AI Server Racks Sit Idle in Warehouses Due to Power Shortages
BenzingaShare
Summary
Amazon is stockpiling AI server racks in warehouses due to power shortages, despite spending billions on Nvidia hardware. Internal emails show $5 billion in systems arrived in August, with $3 billion expected monthly. Some sites have space but lack power, delaying deployment. AWS CFO John Felton called the AI business "hugely free cash flow negative." Amazon plans $220 billion in capex this year. Morgan Stanley warns of a 32-gigawatt shortfall through 2028. With inflation data affecting energy costs, altcoins to watch may see renewed interest amid infrastructure bottlenecks.
Source:Show original
Disclaimer: The information on this page may have been obtained from third parties and does not necessarily reflect the views or opinions of KuCoin. This content is provided for general informational purposes only, without any representation or warranty of any kind, nor shall it be construed as financial or investment advice. KuCoin shall not be liable for any errors or omissions, or for any outcomes resulting from the use of this information.
Investments in digital assets can be risky. Please carefully evaluate the risks of a product and your risk tolerance based on your own financial circumstances. For more information, please refer to our Terms of Use and Risk Disclosure.