Microsoft to Deploy 50% Cheaper Jalapeno AI Chips, Adds GE Turbines
MSFT•OpenAI’s first Jalapeno AI chip co-developed with Broadcom delivers roughly 50% lower costs and will be added to Microsoft’s data centers later this year. Morgan Stanley rates Microsoft a Strong Buy as shares trade 20–25% below five-year averages despite performance obligations doubling to $633 billion and Azure, Copilot and Fabric growing in the high teens.
1. Custom AI Chip Deployment
OpenAI and Broadcom have begun testing the Jalapeno accelerator, which offers approximately 50% cost savings versus traditional AI GPUs. Microsoft will integrate these chips into its hyperscale data centers later this year to enhance AI workload efficiency and reduce hardware spending.
2. Strong Buy Rating and Valuation
Morgan Stanley upgraded Microsoft to a Strong Buy, noting shares are trading 20–25% below their five-year valuation average. The firm highlighted a doubling of performance obligations to $633 billion, high-teens growth in Azure and Productivity segments, and rapid scaling of Copilot and Fabric platforms.
3. Texas Data Center Power Upgrade
Microsoft has purchased seven GE Vernova gas turbines, in partnership with Chevron, to supply power for its new Texas AI data center. The turbines will increase on-site generation capacity and ensure stable, high-availability power for intensive AI workloads.
4. Integrated AI Infrastructure Strategy
These moves underscore Microsoft’s end-to-end AI infrastructure push, combining custom hardware, robust data center expansion and favorable valuation thesis. The company aims to strengthen its competitive moat by controlling costs, scaling capacity and maintaining rapid platform innovation.
