TLDR
- Microsoft has canceled some US data center leases totaling “a couple of hundred megawatts” of capacity
- TD Cowen suggests Microsoft may be in an “oversupply position” regarding AI computing capacity
- Microsoft maintains its plan to spend over $80 billion on infrastructure this fiscal year despite the cancellations
- The company may be reallocating some investment from international locations back to the US
- These moves come amid broader questions about Big Tech’s massive spending on AI infrastructure
Microsoft has canceled several data center leases in the United States while maintaining its overall spending target for AI infrastructure, according to reports from TD Cowen. The canceled leases amount to “a couple of hundred megawatts” of capacity, roughly equivalent to two data centers.
The technology giant has voided agreements with at least two private operators, based on TD Cowen’s “channel checks” with supply chain providers. These checks also suggest Microsoft has pulled back on converting statements of qualifications, which are agreements that typically lead to formal leases.
Despite these cancellations, Microsoft reaffirmed its commitment to spend over $80 billion on infrastructure for the fiscal year ending in June. “While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions,” a Microsoft spokesperson stated.
- The exact reasons for Microsoft’s lease cancellations remain unclear. TD Cowen suggested in a second report that OpenAI, which Microsoft heavily backs, might be shifting some workloads to Oracle as part of a newer partnership. Another possibility is that Microsoft is reallocating investments from international locations back to the United States.
“While we have yet to get the level of color via our channel checks that we would like into why this is occurring, our initial reaction is that this is tied to Microsoft potentially being in an oversupply position,” wrote TD Cowen analysts Michael Elias, Cooper Belanger, and Gregory Williams.
Microsoft Voids “Couple Hundred Megawatts” of Data Center Capacity
The cancellations go beyond just a few leases. TD Cowen reported that Microsoft has let more than a gigawatt of agreements on larger sites expire and walked away from “multiple” deals involving approximately 100 megawatts each. The firm also noted that Microsoft has abandoned at least five land parcels intended for additional data center capacity.
According to TD Cowen, Microsoft cited facility and power delays as justifications for terminating these leases. This approach mirrors tactics previously used by competitors like Meta Platforms when they reduced capital spending.
The news comes at a time when Big Tech’s massive AI investments face increased scrutiny. Critics have pointed to a lack of practical, real-world applications for AI despite billions in spending on the data centers needed to train and host AI services.
Questions about these huge outlays intensified after Chinese startup DeepSeek released a new open-source AI model that reportedly rivals American technology at a fraction of the cost. This development has prompted investors to examine the necessity and returns of heavy AI investments more closely.
Microsoft’s relationship with OpenAI may also be evolving in ways that affect its data center needs. In January, OpenAI and SoftBank Group announced a joint venture called Project Stargate to spend up to $500 billion on data centers and other AI infrastructure.
That same month, Microsoft modified its multiyear deal with OpenAI, allowing the AI startup to use cloud-computing services from competitors. Previously, Microsoft had been OpenAI’s exclusive cloud provider, though it still maintains a right of first refusal when OpenAI needs computing power for its AI models.
On a January earnings call, Microsoft CEO Satya Nadella emphasized the need to sustain spending to meet “exponentially more demand” while also working to make servers more cost-efficient. Nadella has consistently downplayed concerns about AI overcapacity.
The news about Microsoft’s data center lease cancellations affected European stocks tied to the energy sector, with companies like Schneider Electric and Siemens Energy experiencing declines. This reaction suggests investors are concerned that Big Tech companies might need less power to run their data centers than previously anticipated.
Analysts at Bernstein noted that the news could “foretell a sustained slowing” in growth at Microsoft’s Azure cloud computing unit. Previously, Microsoft had projected Azure to grow between 31% and 32% in the fiscal third quarter, which fell short of analyst expectations.
Microsoft shares showed little movement in response to the news, trading marginally higher in premarket trading on Monday.
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