Microsoft signs $20 bn AI cloud power deal with Nebius, the firm that spun out from Russian internet giant

Microsoft has signed a deal with Nebius, the firm that spun out of Russian internet giant Yandex last year, to get artificial intelligence (AI) cloud computing power for the next seven years that could be worth nearly $20 billion.

The Microsoft-Nebius deal is worth $17.4 billion and will run till 2031 but the terms allow Microsoft to buy additional services capacity that could take the total value to about $19.4 billion, according to Reuters.

Under the deal, Nebius said it will provide Microsoft with dedicated capacity from a new data centre in Vineland, New Jersey, as per Bloomberg.

The deal has come at a time when Microsoft has ramped up capital expenditure to record levels in recent years to build new data centres and equip them with servers and networking equipment. This has come as the demand for AI applications and cloud has continued to surge.

Despite such a push, Microsoft has consistently faced shortage of AI cloud computing capacity.

Microsoft has often lacked enough capacity to serve its own need, such as the development of AI products and the sale of Azure-branded AI services to customers. It is also contract-bound to provide AI computing power to OpenAI, the company behind ChatGPT, and has sought excess capacity from other companies like CoreWeave, as per Bloomberg.

Microsoft Chief Financial Officer Amy Hood said in July that the company expected “to remain capacity constrained” till the end of this year.

Nebius was previously Yandex and was centred in Russia. Following the Russian full-scale invasion of Ukraine in 2022, the Russian and non-Russian businesses were spun into two entities in the wake of sanctions. Yandex NV, the Dutch parent company of Yandex, sold the businesses and assets in Russia to a consortium of Russian businesses and later rebranded into Nebius and focussed on AI infrastructure.

In Russia, Yandex after the split remains a popular internet company and runs the largest search engine and ridesharing company.