Microsoft Investing Big in Foreign Data Centers: Should U.S. Investors Be Concerned?

Microsoft (NASDAQ: MSFT), along with other technology giants, is investing billions of dollars in expanding its data center operations overseas. This enables them to build the infrastructure needed to support their rapidly growing cloud-based software business. This is a sign that these companies see a bright future for data storage outside of the US

It’s not necessarily a blow to the U.S. data storage market, however. Here’s why.

Go away from home

Microsoft is well on the way to opening its first regional data center in Israel early next year. The company currently stores data for Israeli customers in other regional data centers, such as Abu Dhabi and Dubai, which it completed in 2019. However, the country will now have a Microsoft public cloud to securely store data within its borders.

This is just the beginning of the company’s cloud efforts in the country. Microsoft also offers a large cloud-based regional data center in Israel and competes with major tech competitors Alphabet (NASDAQ: toget), Google and Amazon (NASDAQ: AMZN). It is planned to invest $ 1 billion to $ 1.5 billion in the country through data centers and expanding chip research and development activities.

In addition to Israel, Microsoft plans to pour US $ 1 billion into Malaysia over the next five years. The investment is part of a partnership with government agencies and local companies to build and manage large data centers and provide cloud services. This investment would enable Malaysia to become a data center where the country would manage data from various surrounding countries. Google, Amazon, and a state-owned telecommunications company in Malaysia also received conditional permits to build and manage data centers in the country.

While the data is global, location is of the essence

Organizations can build data centers anywhere that have power and connectivity. For example, Microsoft tested an underwater data center and turned shipping containers into portable data centers. Meanwhile, others have built floating data centers, and one company is planning to develop a data storage network in space.

However, location is still critical to success in the data center business as connectivity depends on proximity. For this reason, companies build data centers in clusters near Internet exchanges. They do this because it takes time for data to get from one point to another. The closer data centers are to the end user, the faster the speed.

Because of this, Microsoft, other tech giants and data center REITs or real estate investment trusts are building data centers in new locations as this will accelerate the flow of data in these regions. It also increases local data security in a volatile place like Israel, wherever there is a possibility of further regional conflict with its neighbors.

Israel and Malaysia are just two of the many countries where companies are building new data centers. For example, companies are currently expanding their data center activities to include countries such as India, Indonesia and Mexico in order to advance regional digitization and accelerate entry into the cloud.

However, that does not mean the US is losing ground. Data center operators are improving on-premises hubs to ensure these networks don’t get crowded. Leading Data Center REITs Digital Realty Trust (NASDAQ: DLR), Equinix (NASDAQ: EQIX) and QTS Realty Trust (NASDAQ: QTS) are currently expanding their presence in Northern Virginia, the world’s largest data center hub. They’re also growing in Dallas, the second largest hub, and emerging hubs like Phoenix. For example, Iron Mountain (NYSE: IRM) is building a three-story 40-acre campus in this fast-growing subway area.

The worldwide boom in building data infrastructures will continue

As the creation and consumption of data continues to increase, the technology industry will need more data centers and other infrastructure to support this expansion. It needs to increase capacity at the current hubs and build new regional hubs to avoid bottlenecks. That means the data center sector in the US has a lot of growth ahead of it as we use more data to drive our increasingly digital economy.