Microsoft CEO Satya Nadella stated that the global race for artificial intelligence dominance will not be solely decided by software advancements. Instead, he believes that energy costs will be the critical factor determining which countries lead and which fall behind.
Nadella's remarks were made at the World Economic Forum on Tuesday, a time when governments worldwide are actively investing in AI infrastructure to boost productivity and stimulate economic growth.
He explained that Gross Domestic Product (GDP) growth in any nation will closely mirror the cost of energy required to operate AI systems. "GDP growth in any place will be directly correlated to the cost of energy in using AI," Nadella asserted. Countries that can secure affordable and dependable power sources will possess a significant advantage, enabling them to execute more AI workloads at a reduced expense.
AI Tokens Drive Infrastructure Spending and Energy Demand
Central to the burgeoning AI economy is a new commodity known as tokens. These tokens represent the fundamental units of processing power that users purchase to execute AI tasks. The generation of these tokens occurs within massive data centers, which are substantial consumers of electricity.
"The job of every economy and every firm in the economy is to translate these tokens into economic growth," Nadella said. "If you have a cheaper commodity, it’s better."
This economic reality is fueling extensive capital expenditure by hyperscalers, including Microsoft. The company announced at the beginning of 2025 that it anticipates spending $80 billion on the development of AI data centers. Nadella indicated that 50% of this investment will be allocated to projects outside the United States.
The objective behind this investment is straightforward: to establish AI system capacity in locations where energy, land, and infrastructure are conducive to large-scale operations.
However, Nadella cautioned that access to energy is not without its limitations.
"We will quickly lose even the social permission to actually take something like energy, which is a scarce resource, and use it to generate these tokens, if these tokens are not improving health outcomes, education outcomes, public sector efficiency, private sector competitiveness across all sectors," Nadella stated.
Energy costs also play a crucial role in determining the total cost of ownership for AI systems. "It’s not just the production side," Nadella emphasized. "If you think about the TCO, it's like, are you a cheap producer of energy? Can you build the data centers? What’s the cost curve of the silicon in the system?" He highlighted that power, construction, and semiconductor costs are all critical considerations that must be addressed concurrently.
Europe Faces High Energy Costs and Global Competition
The discussion shifted to Europe, where Nadella maintained a direct assessment of the region's challenges. Europe currently experiences some of the highest energy prices globally.
These prices saw a significant increase following Russia's full-scale invasion of Ukraine in 2022 and the subsequent imposition of sanctions. This geopolitical event continues to influence Europe's prospects in the AI sector.
Nadella advised that Europe must look beyond its internal markets to remain competitive on the global stage. "European competitiveness is about the competitiveness of their output globally, not just in Europe," he remarked. He noted that discussions within the region often prioritize internal protectionist measures over engagement with global markets.
He drew a parallel with historical trends, explaining that Europe's prosperity for centuries was built on producing goods that were in demand worldwide. To achieve similar success in the AI era, the region needs access to energy and the capability to power AI systems locally through tokens.
"Whenever we come to Europe, everyone’s talking about sovereignty," Nadella observed. "Europe actually should be much more concerned about access to their industrial companies, their financial services companies."
He argued that market protection alone will not foster European competitiveness. Instead, global demand will be the determining factor. "You are only going to be competitive if the products coming out of Europe are globally competitive," Nadella concluded. "That’s what needs to change."