Microsoft CEO says there is an 'overbuild' of AI systems, dismisses AGI milestones as show of progress

Satya Nadella interview with Dwarkesh Patel
(Image credit: Dwarkesh Patel / YouTube)

Microsoft CEO Satya Nadella sat at an interview where he outlined the company’s plan for artificial intelligence, surprising some in the space in an hour-long session with Dwarkesh Patel. Nadella talked about how AI's impact should be measured, the exponential growth for compute demand, its practical applications, and how it will affect humans — and Microsoft’s recent quantum breakthrough. However, one of the biggest revelations in the interview was his approach to building more hardware for AI.

Nadella says that Microsoft will still need to build compute that can “actually help me not only train the next big model but also serve the next big model.” However, he also said that “there will be an overbuild” and that “it’s not just companies deploying, countries are going to deploy capital”. The Microsoft CEO said that even though he builds a lot, he also plans to lease a lot of compute. “I am thrilled that I’m going to be leasing a lot of capacity in ’27, ’28,” Nadella said. “Because I look at the builds, and I’m saying, ‘This is fantastic.’ The only thing that’s going to happen with all the compute build is the prices are going to come down.”

Satya Nadella – Microsoft’s AGI Plan & Quantum Breakthrough - YouTube Satya Nadella – Microsoft’s AGI Plan & Quantum Breakthrough - YouTube
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He likened this mindset of putting up more compute on the supply side argument of “Hey, let me build it and they’ll come.” However, he pointed out that supply and demand must have some equilibrium, and that he’s tracking both sides of the equation. He said that you have to have proof that initial investments in AI hardware would translate into demand, ensuring that you can reinvest your capital.

Backing off of AGI

Nadella also said that general intelligence milestones aren’t the real indicators of how AI has come along. “Us self-claiming some AGI milestone, that’s just nonsensical benchmark hacking to me.” Instead, he compared AI to the invention of the steam engine during the Industrial Revolution. “The winners are going to be the broader industry that uses this commodity (AI) that, by the way, is abundant. Suddenly productivity goes up and the economy is growing at a faster rate,” said the CEO. He then added later, “The real benchmark is the world growing at 10%.”

The Microsoft CEO did not explicitly say that his company will stop building AI data centers, especially as the company has just signed a contract to restart the Three Mile Island nuclear plant for its data centers. However, it seems that he’s already put a cap on their capital expenditure, especially as competitors are also putting up their own infrastructure. Instead, Microsoft might lease capacity from them.

Aside from all this, Nadella also showed off Microsoft’s breakthrough quantum chip, which he calls a “transistor moment” in quantum computing. The greatest advancement here is that the development could potentially make it feasible to build a quantum computer with millions of qubits, allowing the company to build a “utility-scale quantum computer.” Nadella even claimed that they’ll actually be able to build this in about four years’ time.

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Jowi Morales
Contributing Writer

Jowi Morales is a tech enthusiast with years of experience working in the industry. He’s been writing with several tech publications since 2021, where he’s been interested in tech hardware and consumer electronics.

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  • SonoraTechnical
    from the artcle, Satya:
    “The real benchmark is the world growing at 10%.”

    An entire world economy based on never ending growth in a world of finite resources and space.... What could go wrong?
    Reply
  • hotaru251
    The only thing that’s going to happen with all the compute build is the prices are going to come down.”

    Given the $ this guy makes he likely hasn't notcied, but prices never go down when ai is involved.
    Reply
  • vanadiel007
    He must mean like the growth of Microsoft over the years has allowed prices to come down for products like Windows, Office etc...

    Yes, I understand now.
    Reply
  • why_wolf
    I think he means stock market growth of 10%, not real world growth. Since the growth potential of AI is entirely from the promise that you can fire all your human workers and keep their paychecks.
    Reply
  • vanadiel007
    why_wolf said:
    I think he means stock market growth of 10%, not real world growth. Since the growth potential of AI is entirely from the promise that you can fire all your human workers and keep their paychecks.

    Then nobody would have money to purchase any products and the world will come to a standstill.
    This is all mostly about cost cutting, not about improving human life.
    Reply
  • why_wolf
    vanadiel007 said:
    Then nobody would have money to purchase any products and the world will come to a standstill.
    This is all mostly about cost cutting, not about improving human life.
    Yes but that's the next CEO's problem. Nadella will bail out before his actions finally harm the stock price.
    Reply
  • JTWrenn
    Admin said:
    Microsoft CEO Satya Nadella said in an interview that there is AI hardware overbuild and that his company would be lease capacity from competitors in the future.

    Microsoft CEO says there is an 'overbuild' of AI systems, dismisses AGI milestones as show of progress : Read more
    No he didn't. He said there will be an overbuild. Ie we haven't overbuilt yet...right? He never said there IS an overbuild, or that we have already overbuilt.

    "However, he also said that “there will be an overbuild” and that “it’s not just companies deploying, countries are going to deploy capital”. "

    I know it's a small difference in the wording, but it is a very big difference in the meaning.
    Reply
  • JRStern
    JTWrenn said:
    No he didn't. He said there will be an overbuild. Ie we haven't overbuilt yet...right? He never said there IS an overbuild, or that we have already overbuilt.

    "However, he also said that “there will be an overbuild” and that “it’s not just companies deploying, countries are going to deploy capital”. "

    I know it's a small difference in the wording, but it is a very big difference in the meaning.
    @21:41

    Yes, that's what he said. And yet in the whole discussion he's pushing back on the idea that the pot is soooo big he ought to "invest" absolutely as fast and as much as possible. So the "overbuild" thought is on his mind now. Maybe it's not there yet - and maybe it is. But the plans already in progress probably do comprise some overbuild, if you ask me. There are technical reasons for this already known to Microsoft - three years ago! Training with cleaner data runs exponentially faster. And breaking a monolithic model into parts seems to work, cutting back on exponential costs. And new chips are "20x faster" if you believe NVidia at least when running FP4. And then on top of that: DeepSeek!

    I think 2025 is the year "overbuilt" becomes a reality.

    The simple thought of "more compute wins" and that "scale is all you need", was never what you call credible.

    And in software, a given level of function tends to get exponentially cheaper over a several-year period, both hardware and software algorithms tend to improve and their product improves bigly.
    Reply
  • JRStern
    Nadella comes across as very smart, for a CEO, LOL.
    But he's completely snowed by the Majorana thang.
    Reply
  • philonous
    Admin said:
    However, he pointed out that supply and demand must have some equilibrium, and that he’s tracking both sides of the equation. He said that you have to have proof that initial investments in AI hardware would translate into demand, ensuring that you can reinvest your capital.

    Microsoft is doing the sensible thing again and copying Apple: go slow, figure out what people want. Of course, Nadella is taking this route after being hammered by rampant AI costs with no associated benefits now or in the future for two quarters. Raising rates on MS Office will only slightly offset the massive hits Microsoft is taking because of its gross overspend in AI. I estimate about 5 years for Microsoft to recover from these losses.

    I'm an Apple shareholder because they are the best damn business people in the world. They will not do anything unless they know there is a buck in it; nay, ten bucks. Microsoft has always used its monopoly power to emulate the pioneers: Apple in GUI, Amazon in cloud computing, and Lotus in office productivity. Every time Microsoft has tried to create a new marketplace, it has failed miserably, and its AI venture is another perfect example of their persistent failure to understand how markets for new technology work.

    Even with a $3T valuation they still can't design a human-friendly GUI, especially in Microsoft Office products, even after moving closer and closer to MacOS GUI with windows 11.
    Reply