Chapter 1: What is the main topic discussed in this episode?
Welcome to Tech News Briefing. It's Tuesday, March 3rd. I'm Peter Champelli for The Wall Street Journal. Amazon sells what everyone wants for cheaper than anyone else. That's the formula that's rocketed the company to the top of retail and cloud computing. But can they use the same strategy in the AI race?
And then, early last year, Virginia's power grid was threatened when dozens of data centers suddenly dropped off. We're bringing you inside our exclusive reporting, which revealed for the first time that this dropout happened. And we'll explain why there's a growing risk that it could happen again.
But first, Amazon has fallen behind in the artificial intelligence race, and they're trying to catch up. So in December, they installed a new AI czar, Peter DeSantis, a widely respected Amazon veteran who's been at the company for nearly 28 years. In that time, he's spearheaded cloud computing and silicon chip making operations. But will it be enough to boost their offerings?
The Journal's Sean McClain joins us now with more. Why is it significant that they've put Peter DeSantis in this AI role? You describe him as sort of a celebrity figure within the company. Peter DeSantis is symbolic of a strategy change going on in AI. It's really a shift from...
developing the tech behind their nova ai models to now trying to speed up delivery and bring products to market and also a change in how they're differentiating themselves in the market so peter desantis is known within amazon as being the main guy behind launching a lot of the
infrastructure that powers Amazon's cloud computing business and also its chief cheerleader and architect in their chip strategy as well.
So Amazon under Peter DeSantis is trying to join both their AI efforts, their data center efforts, and their chip making efforts under one leader in the hopes that combining all those businesses will both speed up development and also speed up the delivery of products to customers.
DeSantis says he can make cheaper AI to sell to businesses looking for specific tasks rather than a general knowledge tool like ChatGPT. Break that down for me.
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Chapter 2: What recent event threatened Virginia's power grid?
What would that look like?
right now a lot of the ai services that companies are rolling out there's a real cost problem to it in which you know the cost of those nvidia chips the cost of using you know a big model like gemini or a big model like claude will run up the cost to the point where that service really isn't profitable or worth doing there's a lot of tasks that benefit from ai but don't need the world's strongest or world's most cutting edge model to do well
So that's the strategy and the reason why Amazon is looking at shifting its AI development in a way that brings cost down. At least one company said that the return on cost was better with Amazon's AI. Can you tell me about Nimbus Therapeutics? What was their experience like using Nova? So Nimbus Therapeutics... needs a very specific thing.
They need somebody to look at a bunch of potential molecules as they look for novel molecule designs that could possibly be turned into medicines, which then they could turn on and sell to drug companies. So what they found is that Nova responded just as well as a version of Anthropix Claude, which is seen as a market leader, at one-tenth the price.
Is this revitalized focus on AI and Amazon's plan for spending around it leaving investors confident? I think everybody's a little bit worried about how much money is going out the door towards building these data centers and developing these AI models. Everybody is, as investors would say, priced to perfection in this market, so...
If you're not executing, then your stock market will reflect that instantaneously. And I think in Amazon's case, the concern is how much money is going out the door this year in particular. So Amazon says they're going to spend $200 billion on capital expenditures this year, most of which is going towards building out AI infrastructure.
And that is roughly what they spent in the preceding two years. And they're spending so much that they're probably going to burn cash, at least in the first quarter.
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Chapter 3: How is Amazon responding to competition in the AI race?
And that has investors worried. Is the business going to come in fast enough to justify how much money is going out the door to get ready for these AI customers? That was Wall Street Journal reporter Sean McClain. Which AI models do you use the most? If you're a listener on Spotify, be sure to leave us a comment with your thoughts.
Coming up, power grids have gotten more strained as big data centers pull more and more energy. But sudden data center drop-offs might be the bigger threat. That's after the break. Data centers draw massive amounts of energy. And in order not to overwhelm the power grid, operators need to figure out how to keep the supply of electricity and the demand for electricity flowing very stably.
So what happens when the electricity in roughly 40 data centers, enough to power a million houses, drops off all at once? The Wall Street Journal's Catherine Blunt joins our Katie Dayton to explain. Catherine, what happened to this cluster of data centers in Virginia last year? Do we know exactly what went wrong at this point? Yeah, so it's fairly straightforward what happened.
There was about 42 data centers that kind of went offline all at once in response to a problem on a nearby transmission line. Data centers are equipped with technology that monitor for disruptions in power quality to make sure that they can always operate and operate well and not have damage to the data center equipment.
So during this brief disturbance, all the data centers responded to it by switching to backup power. And, you know, if one or two do that, that's not really an issue. But to have so many go offline all at once created sort of the prospect of instability on the broader power grid.
So a lot of reporting on data centers so far has been focused on what happens if they take up too much electricity from the grid. I personally wouldn't have thought it would be an issue per se if they stopped using electricity. Can you explain why it's a problem when that happens? The issue here is that on the grid, electricity and supply and demand must be in constant balance.
Because if there's either too much supply or too little supply to meet demand, then there is the risk of cascading failure across the system, significant damage to power plant infrastructure. It is the role of the grid operator to make sure that that balance is always maintained. So in this particular case, the grid operator is called PJM interconnection.
And when these data centers all went offline at once, it was equivalent to 1800 megawatts. That's pretty significant. It's like equivalent to the output of a very large power plant. And so we understand it's a problem if there's not enough supply to meet demand.
But if there's too much supply flowing under the grid and that demand is no longer there, you have the same sort of risk to the rest of the system and the infrastructure. How big a deal was this for PJM and also the wider data center industry? Fortunately for everybody who uses the power grid, this wasn't that big of a deal. PJM has contingency plans in place for something like this happening.
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