Microsoft’s $3.3 billion Wisconsin AI hub explained

Microsoft Corporation on Wednesday announced plans to expand on its pledge to build a new artificial intelligence hub in southeast Wisconsin — tripling the multinational technology juggernaut’s investment in the state from an initial $1 billion proposal to a $3.3 billion effort.

President Joe Biden visited Racine County on Wednesday to unveil Microsoft’s latest proposal, which is slated for land where Taiwan-based Foxconn Technology Group had once promised to build a $10 billion facility — a proposal that former President Donald Trump once touted as a future “eighth wonder of the world.” The project ultimately failed to deliver on that promise and has since been drastically scaled back.

Democratic Gov. Tony Evers touted Microsoft’s announcement as “a watershed moment” for the state that will help modernize Wisconsin’s manufacturing industry far beyond the datacenter’s Mount Pleasant footprint.

What’s more, officials with the Wisconsin Economic Development Corporation say Microsoft’s plans to also create an artificial intelligence co-innovation lab — planned for the UW-Milwaukee campus — will not only be the first of its kind in the nation, but will help foster additional economic development throughout the region and state.

So what do we know about Microsoft’s latest announcement?

Microsoft, based in Redmond, Washington, agreed in April 2023 to buy a $50 million parcel of land previously set aside for Foxconn.

Microsoft officials said at the time it planned to build a $1 billion data center on the 315-acre parcel in Mount Pleasant, a village of about 27,000 people in Racine County. The company’s first data center on the site is expected to open in 2026.

Foxconn’s original contract, signed by former Gov. Scott Walker in 2017, promised the company $3 billion in state subsidies if it made a $10 billion investment and hired 13,000 employees over a 15-year period. Other state and local incentives, including $150 million in sales tax breaks that the company still could receive, brought the total to about $4 billion.

But Foxconn’s plans never fully materialized and the Wisconsin Economic Development Corporation in 2021 replaced the company’s original incentive package with one providing $80 million if the company hires 1,454 workers and invests $672 million by 2026.

WEDC Secretary Missy Hughes said the revised Foxconn agreement better aligned with the company’s overall scope and size and Foxconn has so far met its job performance requirements under the new plan.

“We’re really happy that we were able to renegotiate that agreement and get Foxconn right in line and in place with many of our other companies, and now we’re adding Microsoft to that list of amazing companies that we have in Wisconsin so it’s a win-win,” Hughes told the Wisconsin State Journal.

Wednesday’s announcement increases Microsoft’s investment in Mount Pleasant to $3.3 billion for an AI data center that would create 2,300 union construction jobs by 2025. The center is expected to create 2,000 permanent jobs over time, according to the Biden administration.

In addition, Microsoft plans to partner with UW-Milwaukee and Gateway Technical College to create an AI co-innovation lab that seeks to train as many as 1,000 individuals by 2030 for data center and IT sector jobs in the area.

Microsoft’s co-innovation labs train companies’ technology teams on artificial intelligence and the “Internet of Things” to develop strategies, solve problems and better implement new technologies into their everyday practices.

“That’s going to not only put Wisconsin on the map for artificial intelligence, but also help our manufacturers and the rest of the state have the opportunity to lead when it comes to AI and advanced manufacturing and really be that center of excellence,” Hughes said.

Milwaukee’s lab will be Microsoft’s seventh in the world and third in the U.S. The company currently operates similar labs in Redmond and San Francisco, California. Microsoft officials said Wednesday Milwaukee’s lab will be the company’s first to focus on AI in manufacturing.

The lab aims to serve 270 Wisconsin companies, including 135 manufacturing businesses, by 2030.

“We will use the power of AI to help advance the next generation of manufacturing companies, skills and jobs in Wisconsin and across the country,” Microsoft president and vice chair Brad Smith, who grew up in Appleton, said in a statement. “This is what a big company can do to build a strong foundation for every medium, small and start-up company and non-profit everywhere.”

The lab will also collaborate with Green Bay’s Titletown Tech, which is funded in part by Microsoft and the Green Bay Packers. Titletown Tech provides venture capital and development resources to entrepreneurs in technology.

Mark Murphy, president and CEO of the Green Bay Packers, said the continued partnership with Microsoft “now will expand and enhance as we collaborate with the AI Co-Innovation Lab.”

Microsoft also plans to partner with United Way Wisconsin, United Way Racine and other community partners to upskill more than 100,000 people across the state in generative AI over the next six years.

The state’s current two-year spending plan, signed by Evers last summer, created a sales and use tax exemption for qualified data center projects with minimum costs ranging from $50 million to $150 million. Microsoft’s project is the first beneficiary of the tax exemptions, which apply to a range of costs including servers, computer equipment and other upgrades.

The state Department of Revenue said last year that, based on typical capital expenditures for data center construction projects, the exemption would reduce the state’s sales and use tax collections by an estimated $8.5 million for the project’s initial construction and have an ongoing reduction of $735,000 for ongoing operating costs.

DOR notes in the state budget that “the estimated amount of forgone sales tax revenue as a result of this provision is unknown.”

“Further, it is unknown whether WEDC would certify any new qualified data centers to be constructed during the 2023-25 biennium,” the budget states.

In addition to tax exemptions, the Wisconsin Economic Development Corporation will provide $500,000 in grant funds to support capital improvements for the Co-Innovation Lab at UW-Milwaukee, as well as $500,000 to help open the TitletownTech-Milwaukee office within the lab.

Tom Still, president of the Wisconsin Technology Council, described the grant funds and tax exemptions provided to Microsoft as “an active, but measured approach.”

“I think for the region, and by that I mean the upper Midwest region, it’s going to have some really great implications over time,” Still said.