Microsoft Secures 2.67 GW Chevron Power Deal, Faces Rising AI Memory Costs
MSFT•Microsoft signed a 20-year, $7 billion power purchase agreement with Chevron for 2.67 GW of Project Kilby capacity, securing energy costs through 2048 and boosting Azure AI profitability. Meanwhile, AI demand-driven memory shortages—underscored by Micron’s 84.9% gross margin surge and Samsung’s $648 billion chip investment—threaten to inflate infrastructure costs.
1. Chevron Power Purchase Agreement
Microsoft and Chevron inked a 20-year power purchase agreement for Project Kilby’s 2.67 GW natural gas plant in West Texas, investing roughly $7 billion. Initial power deliveries are slated for 2028, with fixed energy rates secured through 2048, improving cost visibility and reliability for Microsoft’s expanding AI data centers.
2. Memory Shortages Drive Up Costs
Surging AI demand has tightened memory supply, sending Micron to a forward P/E near 9x and gross margins above 84.9%. Elevated chip prices could pass through to Microsoft’s cloud and AI infrastructure, potentially pressuring Azure profitability if end customers resist higher usage fees.
3. Samsung’s Massive Chip Investment
Samsung Electronics announced a $648 billion, decade-long semiconductor investment plan, including 300 trillion won for new memory fabs. This scale of spending underscores confidence in sustained AI-driven demand but intensifies competition for power, water and fab capacity critical to Microsoft’s hardware supply chain.
