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Through the rapid growth of Azure, Microsoft's (MSFT) cloud platform that helps enterprises manage and run databases and applications, the tech giant is seeing firsthand how the emergence of AI is creating an ever-increasing demand for data center infrastructure. In fact, when MSFT reported Q4 results in late July, one key takeaway was that Azure's revenue growth of 30% likely would have been even stronger if not for capacity constraints.

The issue isn't that MSFT is being too conservative with its investments -- its capital expenditures were $19 bln in Q4 with nearly half of that tied to AI-related spending -- rather, the inability to build and scale data centers fast enough to keep pace with demand is the main challenge for MSFT and other hyperscalers. While MSFT expects its FY25 capex to exceed FY24 levels due to ramping infrastructure investments, the company recognizes that there is no slowdown in sight in terms of the need for more data centers for itself or for its cloud computing peers.

• Blackrock (BLK), the massive investment manager with $10.6 trillion in assets under management, sees the writing on the wall, too, and is turning to MSFT and NVIDIA (NVDA) to help it create a new vehicle for investors, insurance companies, pension funds, and corporations to invest in data centers and power infrastructure.
• Specifically, BLK announced that its forming a new AI partnership with MSFT, Global Infrastructure Partners, and MGX through the creation of the Global AI Infrastructure Investment Partnership (GAIIP). NVIDIA has agreed to provide its expertise in GPUs and AI data centers, helping the GAIIP to develop a healthy AI ecosystem in the U.S.
• Initially, the GAIIP will seek $30 bln in private equity capital -- MSFT will also be an investor -- but the partnership is ultimately targeting $100 bln in total investment potential when including debt financing.
• According to BLK, these investors will have the opportunity to earn long-term returns, while hyperscalers like MSFT are freed up to use their capital in other areas. 

The main takeaway is that this partnership looks like a win-win scenario for both BLK and MSFT. While BLK should have little trouble raking in new capital from this endeavor, MSFT should ultimately benefit from the expanded data center infrastructure in the U.S., allowing it to dial back its capex over time.