Microsoft Scales Back AI Data Center Expansion Amid Industry-Wide Spending Boom

Microsoft scales back AI data center expansion amid AI spending boom

Cutting corners: Microsoft and all other Big Tech counterparts have been pouring billions into AI infrastructure, building massive data centers to fuel the next generation of artificial intelligence. However, new developments suggest the company may be reassessing the scale of its spending - at least in some areas. According to investment firm TD Cowen, Microsoft has recently canceled leases for data center capacity in the U.S., amounting to several hundred megawatts - roughly the equivalent of two large data centers. This move comes despite the company's previously announced plans to invest over $80 billion in AI and cloud infrastructure during its current fiscal year. Redmond could just have canceled its data center leases for very mundane, understandable reasons, so while the lease cancellations could just be "business as usual," they also raise broader questions about the sustainability of Big Tech's AI spending spree. Microsoft has reiterated that its overall investment strategy remains unchanged, with AI infrastructure expansion still a priority. A spokesperson confirmed that the company may "adjust spending in some areas" but emphasized that global infrastructure growth will continue to meet rising customer demand. Also see: Amazon, Google, Microsoft, and Meta push AI spending to new heights, set to surpass $320 billion this year The decision comes at a time when Microsoft CEO Satya Nadella has acknowledged the high costs of AI development. In a recent interview, Nadella admitted that while AI represents a transformative opportunity, the technology has yet to deliver significant value proportional to the massive capital being poured into it. He also cautioned that over-investing in AI infrastructure without clear returns could be risky, even for industry leaders like Microsoft. Microsoft's recalibration reflects a broader debate within the industry: How much should companies invest in AI when the long-term financial returns remain uncertain? The AI boom has pushed Microsoft, Google, Amazon, and Meta to spend aggressively on data centers, semiconductor partnerships, and custom AI chips, but the path to profitability remains murky. Meanwhile, OpenAI - Microsoft's key AI partner - has been seeking additional investors beyond Microsoft, including a potential partnership with Oracle and Softbank. This shift may be influencing Microsoft's infrastructure strategy, prompting it to evaluate where and how it deploys resources. Despite the lease cancellations, Microsoft's AI expansion remains on track, but its latest move signals a more measured approach to spending. As Nadella suggested, the real challenge for AI isn't just scaling up computing power but ensuring that supply and demand align in a way that creates meaningful value.

Microsoft cancels leases for AI data centres, analyst says

Microsoft Corp. has begun canceling leases for a substantial amount of datacentre capacity in the U.S., a move that may reflect concerns about whether it's building more AI computing than it will need over the long term, TD Cowen said in a report. OpenAI's biggest backer has voided leases totaling "a couple of hundred megawatts" of capacity, the US brokerage wrote Friday, citing channel checks or inquiries with supply chain providers. Microsoft has also stopped converting so-called statement of qualifications, which are agreements that usually lead to formal leases, TD Cowen said. That was a tactic rivals such as Meta Platforms Inc. employed previously, when it decided to cut back on capital spending, the brokerage wrote. Microsoft is redirecting a portion of its planned international spending to the US too, TD Cowen said, which "suggests to us a material slowdown in international leasing." A potential pullback by Microsoft on spending and datacenter construction raises questions about whether the company -- one of the frontrunners among Big Tech in AI -- is growing cautious about the outlook for demand. The company has said it expects to spend $80 billion this fiscal year on AI data centers, and, on a late January earnings call, Chief Executive Officer Satya Nadella said Microsoft has to sustain spending to meet "exponentially more demand." In a Monday research note, the same analysts said Microsoft's pullback reflects a shift by OpenAI toward alternative partners, including Oracle Corp. They wrote that overall the effect is "net neutral for third-party data center demand." Microsoft in a statement on Monday reiterated its spending target for the fiscal year ending June, but declined to comment on TD Cowen's note. "While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions," a company spokesperson said in the statement. "Our plans to spend over $80B on infrastructure this FY remains on track as we continue to grow at a record pace to meet customer demand." European stocks tied to the energy sector dropped on the report, which may suggest big tech companies will need less power to run their data centers. Schneider Electric SE and Siemens Energy AG slid. Critics have consistently pointed out a dearth of practical, real-world applications for AI, even as Microsoft, Meta and Amazon.com Inc. have pledged to spend billions on the datacenters needed to train, develop and host AI services. Wall Street stepped up its questions about the massive outlays after the Chinese upstart DeepSeek released a new open-source AI model that it claims rivals the abilities of US technology at a fraction of the cost. "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," TD Cowen analysts Michael Elias, Cooper Belanger and Gregory Williams wrote, stressing it was just their interpretation. Microsoft executives have consistently played down concerns about AI overcapacity. It's spending more than it ever has in its history, outlays that mostly go to the chips and data centers required to fuel power-hungry AI services. In Friday's report, TD Cowen's analysts wrote that their channel checks had unearthed a number of signals about Microsoft's gradual retreat from datacenter construction and acquisition. They learned that Microsoft had let more than a gigawatt of agreements on larger sites expire, and walked away from "multiple" deals involving about 100 megawatts each (datacenter capacity is often stated in terms of the power they need to stay up and running). Microsoft's alliance with OpenAI may also be evolving in ways that mean the software giant won't need the same kind of investments. In January, OpenAI and SoftBank Group Corp. announced a joint venture to spend at least $100 billion and perhaps $500 billion on data centers and other AI infrastructure. In January, Microsoft said it would alter its multiyear deal with OpenAI so the artificial intelligence startup could use cloud-computing services from rival providers. Microsoft, which had been the company's exclusive cloud provider, still has a right of first refusal when OpenAI seeks computing horsepower to train and run its AI models. With assistance from Debby Wu and Charles Capel.

Microsoft cancels leases for AI data centers, analyst says

(Bloomberg) -- Microsoft has begun canceling leases for a substantial amount of datacenter capacity in the U.S., a move that may reflect concerns about whether it's building more AI computing than it will need over the long term, TD Cowen said in a report. OpenAI's biggest backer has voided leases totaling "a couple of hundred megawatts" of capacity, the US brokerage wrote Friday, citing channel checks or inquiries with supply chain providers. Microsoft has also stopped converting so-called statement of qualifications, which are agreements that usually lead to formal leases, TD Cowen said. That was a tactic rivals such as Meta Platforms Inc. employed previously, when it decided to cut back on capital spending, the brokerage wrote. Microsoft is redirecting a portion of its planned international spending to the US too, TD Cowen said, which "suggests to us a material slowdown in international leasing." A potential pullback by Microsoft on spending and datacenter construction raises questions about whether the company -- one of the front-runners among Big Tech in AI -- is growing cautious about the outlook for demand. The company has said it expects to spend $80 billion this fiscal year on AI data centers, and, on a late January earnings call, Chief Executive Officer Satya Nadella said Microsoft has to sustain spending to meet "exponentially more demand." In a Monday research note, the same analysts said Microsoft's pullback reflects a shift by OpenAI toward alternative partners, including Oracle Corp. They wrote that overall the effect is "net neutral for third-party data center demand." Microsoft in a statement on Monday reiterated its spending target for the fiscal year ending June, but declined to comment on TD Cowen's note. "While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions," a company spokesperson said in the statement. "Our plans to spend over $80B on infrastructure this FY remains on track as we continue to grow at a record pace to meet customer demand." European stocks tied to the energy sector dropped on the report, which may suggest big tech companies will need less power to run their data centers. Schneider Electric SE and Siemens Energy AG slid. Critics have consistently pointed out a dearth of practical, real-world applications for AI, even as Microsoft, Meta and Amazon.com Inc. have pledged to spend billions on the datacenters needed to train, develop and host AI services. Wall Street stepped up its questions about the massive outlays after the Chinese upstart DeepSeek released a new open-source AI model that it claims rivals the abilities of US technology at a fraction of the cost. "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," TD Cowen analysts Michael Elias, Cooper Belanger and Gregory Williams wrote, stressing it was just their interpretation. Microsoft executives have consistently played down concerns about AI overcapacity. It's spending more than it ever has in its history, outlays that mostly go to the chips and data centers required to fuel power-hungry AI services. In Friday's report, TD Cowen's analysts wrote that their channel checks had unearthed a number of signals about Microsoft's gradual retreat from datacenter construction and acquisition. They learned that Microsoft had let more than a gigawatt of agreements on larger sites expire, and walked away from "multiple" deals involving about 100 megawatts each (datacenter capacity is often stated in terms of the power they need to stay up and running). Microsoft's alliance with OpenAI may also be evolving in ways that mean the software giant won't need the same kind of investments. In January, OpenAI and SoftBank Group Corp. announced a joint venture to spend at least $100 billion and perhaps $500 billion on data centers and other AI infrastructure. In January, Microsoft said it would alter its multiyear deal with OpenAI so the artificial intelligence startup could use cloud-computing services from rival providers. Microsoft, which had been the company's exclusive cloud provider, still has a right of first refusal when OpenAI seeks computing horsepower to train and run its AI models. -- With assistance from Debby Wu and Charles Capel. (Updates with TD Cowen follow-up note on Monday in fifth paragraph)

Analysts Notice Microsoft Quietly Cancelling Data Center Leases

After promising to spend $80 billion on AI infrastructures, the tech giant appears to be pulling back. TD Cowen noticed Microsoft doing something strange on Friday. The Open AI partner and tech giant appeared to be cancelling data center leases. According to the market analysts, this is part of a wider pattern. TD Cowen said Microsoft had an “oversupply†problem. It’s another datapoint that points to Big Tech’s nervousness around its big bet on AI. TD Cowen published its quick take on February 21 and said its research into Microsoft’s data center business had turned up something interesting. “Our channel checks indicate that [Microsoft] has 1) cancelled leases in the U.S. totalling â€~a couple of hundreds [megawatts]’ with at least two private data center operators, 2) has pulled back on the conversion of [statements of qualification] to leases, and 3) has re-allocated a considerable portion of its international spend to the U.S.†A statement of qualification or SOQ is a precursor to the signing of a lease. TD Cowen noted that the conversion rate of an SOQ into a signed lease is almost 100% so it’s odd for the tech giant to kill them. It could be a negotiation tactic or it could be a sign of a wider market shift. “When coupled with our prior channel checks, it points to a potential oversupply position for [Microsoft,]†TD Cowen said in its quick take. The leases aren’t the only sign that Microsoft is cooling down its AI spend. “Microsoft walked away from multiple +100MW deals in multiple markets that were in early/ mid stages of negotiations, let a +1GW of [Letters of Intent] on larger footprint sites expire, and walked away from at least five land parcels that it had under construction in multiple Tier 1 markets,†TD Cowen said. Part of what’s going on is that Microsoft, like other tech companies, is promising to do more business in the U.S. following the election of Donald Trump. America and the markets are waiting with bated breath to see what effects Trump’s tariffs and presidency will have on the market. He’s deregulating AI but he’s also making everything more expensive. When the world becomes more uncertain, companies spend less. In January Microsoft promised that it would spend $80 billion on data centers in America. It’s also gone all in on small modular nuclear reactors to power these data centers and is even working on spinning up a long-dormant reactor at Three Mile Island. But it also paused construction on a data center meant to service Open AI in Wisconsin earlier this year, leaving $3.3 billion in limbo. Microsoft has a hand in Open AI, which makes the popular ChatGPT. But it also owns CoPilot, a service it’s been trying to force on Windows and Office users. Everyone hates it. It runs Bing, an also-ran search engine that’s incorporating more and more AI slop that everyone also hates. CEO Satya Nadella pumped the brakes on AI hype in a podcast appearance last week, too. Nadella told Dwarkesh Patel that he didn’t buy into the idea of artificial general intelligenceâ€"something OpenAI founder Sam Altman has been bullish onâ€"and said it was time for AI to start showing the market some returns. According to TD Cowen, the signals all point to a reduction in AI-related spending from Microsoft. “The magnitude of both potential data center capacity it walked away from and the decision to pullback on land acquisition (which supports core long-term capacity growth) in our view indicates the loss of a major demand signal that Microsoft was originally responding to and that we believe the shift in their appetite for capacity is tied to OpenAI,†it said. Microsoft pushed back on some of this later when it talked to the business press. “While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions,†a Microsoft spokesperson said in a statement to Bloomberg. “Our plans to spend over $80B on infrastructure this [financial year] remain on track as we continue to grow at a record pace to meet customer demand.†It’s unclear how much demand there actually is for massive data centers and the large language models they support.

Microsoft cancels some of its AI data center leases | TechCrunch

Microsoft is reportedly shrinking its data center footprint. The tech giant has canceled leases with multiple data center providers that total a "couple hundred megawatts" of capacity, according to Bloomberg, which cited a memo from investment bank TD Cowen. This total represents the equivalent of about two data centers. The reason for Microsoft's move is unclear but raises broader question if the company is resetting expectations for future AI demand, Bloomberg noted. The rest of the industry seems to be heading in the other direction. At the beginning of January, incoming president Donald Trump announced a $20 billion data center funding initiative led by Emirati billionaire businessman Hussain Sajwani. Later in January, OpenAI, Oracle, and SoftBank announced Stargate, a project that would funnel up to $500 billion into data centers for OpenAI. TechCrunch reached out to Microsoft for more information.

Microsoft shelves AI data-center deals in sign of potential oversupply, analyst says

Redmond, Washington-based Microsoft has canceled leases totaling "a couple of hundred megawatts" of capacity with at least two private data-center operators, the analysts led by Michael Elias said, citing supply chain checks.Microsoft has scrapped leases for sizeable data center capacity in the US, suggesting a potential oversupply at the tech giant as it builds out artificial intelligence infrastructure to meet a potential demand surge, TD Cowen analysts said. Skepticism has been growing among investors over the billions of dollars US tech firms have been channeling into AI infrastructure due to slow payoffs and breakthroughs at Chinese startup DeepSeek, which has showcased AI tech on par with or even better than its Western rivals at a fraction of the cost. Redmond, Washington-based Microsoft has canceled leases totaling "a couple of hundred megawatts" of capacity with at least two private data-center operators, the analysts led by Michael Elias said, citing supply chain checks. Microsoft has also paused converting statement of qualifications, or precursors to formal leases, the analysts added, saying other tech firms including Meta Platforms had previously made similar moves to lower capital spending. The note was published late on Friday but it picked up traction on social media platforms over the weekend, with several media outlets covering the development on Monday. Microsoft, the main backer of ChatGPT-maker OpenAI, did not immediately respond to a request for comment on Monday. Brokerage Jefferies, currently hosting the Microsoft investor relations team in Sydney, said the company has strongly denied any change to its data center plans. The company's shares, which underperformed most Big Tech stocks last year, rose about 0.5% in premarket U.S. trading. Any lease cancellations would mark a sharp shift for a company that months ago earmarked $80 billion in capital spending for this fiscal year, mostly for AI. Microsoft has called the spending crucial to easing supply bottlenecks that limit its ability to meet AI demand. The news could possibly indicate lower demand, Bernstein analyst Mark Moelder said, especially after lackluster quarterly results from major cloud companies, but it was also reflective of the capacity build-up at Microsoft in the past years. "Microsoft needed to meet demand and had a great deal of difficulty finding capacity. Management may, therefore, have rented, even at a meaningful premium, data centers and GPU capacity and negotiated more deals for additional future capacity than they needed," Moelder said.

Microsoft Rethinks Compute Needs, Cancels AI Data Centre Leases

OpenAI is planning to shift its workload from Microsoft to Project Stargate. Microsoft has reportedly started cancelled leases for a significant data centre capacity in the US, raising concerns about the long-term sustainability of AI infrastructure investments, according to Bloomberg, which cites analyst TD Cowen. The report added that the tech giant cancelled agreements of "a couple of hundred megawatts" of capacity, citing insights from supply chain providers. The decision suggests Microsoft may be reassessing its AI computing needs, even as it pledges to spend $80 billion this fiscal year on expanding computing capacity. The report, released on Friday, noted that Microsoft has also halted conversions of statement of qualifications, a step that typically leads to formal leasing agreements. The move has sparked speculation over whether Microsoft is adjusting its AI strategy due to potential overcapacity. On its January earnings call, CEO Satya Nadella said that the company must sustain high levels of spending to meet "exponentially more demand". However, Wall Street has increasingly questioned the long-term viability of such investments, given the uncertain commercial applications of AI. In response to the report, Microsoft reiterated its spending target but acknowledged some adjustments in infrastructure development. "While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions," a company spokesperson said. "Our plans to spend over $80 billion on infrastructure this fiscal year remain on track as we continue to grow at a record pace to meet customer demand." At the same time, OpenAI appears to be exploring alternative computing options. In a recent report, The Information suggested that OpenAI is planning to shift its workload from Microsoft to Project Stargate. The report states that in recent weeks, OpenAI has informed investors that Stargate -- a developing data centre expansion initiative, expected to receive substantial funding from SoftBank -- could supply around 75% of the computing power needed to operate and refine its AI models by 2030. Notably, Microsoft is no longer OpenAI's exclusive cloud partner. In a recent blog, OpenAI announced a new large-scale commitment to Azure, which will continue supporting all its products and model training. However, the agreement now allows for more flexibility. Instead of exclusivity, Microsoft has a right of first refusal on any new capacity OpenAI wants to add. This means Microsoft gets the first chance to match any other cloud provider's offer before OpenAI can move forward with them. On the other hand, the emergence of cost-efficient AI models, such as the open-source model developed by Chinese company DeepSeek, has intensified scrutiny of major firms' AI expenditures. DeepSeek claims its model rivals US technology at a fraction of the cost, raising questions about the financial sustainability of large-scale AI infrastructure investments.

Microsoft shelves AI data-center deals in sign of potential oversupply, analyst says

(Reuters) - Microsoft has scrapped leases for sizeable data center capacity in the U.S., suggesting a potential oversupply at the tech giant as it builds out artificial intelligence infrastructure to meet a potential demand surge, TD Cowen analysts said. Skepticism has been growing among investors over the billions of dollars U.S. tech firms have been channeling into AI infrastructure due to slow payoffs and breakthroughs at Chinese startup DeepSeek, which has showcased AI tech on par with or even better than its Western rivals at a fraction of the cost. Redmond, Washington-based Microsoft has canceled leases totaling "a couple of hundred megawatts" of capacity with at least two private data-center operators, the analysts led by Michael Elias said, citing supply chain checks. Microsoft has also paused converting statement of qualifications, or precursors to formal leases, the analysts added, saying other tech firms including Meta Platforms had previously made similar moves to lower capital spending. The note was published late on Friday but it picked up traction on social media platforms over the weekend, with several media outlets covering the development on Monday. Microsoft, the main backer of ChatGPT-maker OpenAI, did not immediately respond to a request for comment on Monday. Brokerage Jefferies, currently hosting the Microsoft investor relations team in Sydney, said the company has strongly denied any change to its data center plans. The company's shares, which underperformed most Big Tech stocks last year, rose about 0.5% in premarket U.S. trading. Any lease cancellations would mark a sharp shift for a company that months ago earmarked $80 billion in capital spending for this fiscal year, mostly for AI. Microsoft has called the spending crucial to easing supply bottlenecks that limit its ability to meet AI demand. The news could possibly indicate lower demand, Bernstein analyst Mark Moelder said, especially after lackluster quarterly results from major cloud companies, but it was also reflective of the capacity build-up at Microsoft in the past years. "Microsoft needed to meet demand and had a great deal of difficulty finding capacity. Management may, therefore, have rented, even at a meaningful premium, data centers and GPU capacity and negotiated more deals for additional future capacity than they needed," Moelder said. (Reporting by Aditya Soni in Bengaluru; Editing by Sriraj Kalluvila)

Microsoft shelves AI data-center deals in sign of potential oversupply, analyst says

Feb 24 (Reuters) - Microsoft has scrapped leases for sizeable data center capacity in the U.S., suggesting a potential oversupply at the tech giant as it builds out artificial intelligence infrastructure to meet a potential demand surge, TD Cowen analysts said. Skepticism has been growing among investors over the billions of dollars U.S. tech firms have been channeling into AI infrastructure due to slow payoffs and breakthroughs at Chinese startup DeepSeek, which has showcased AI tech on par with or even better than its Western rivals at a fraction of the cost. Redmond, Washington-based Microsoft (MSFT.O), opens new tab has canceled leases totaling "a couple of hundred megawatts" of capacity with at least two private data-center operators, the analysts led by Michael Elias said, citing supply chain checks. Microsoft has also paused converting statement of qualifications, or precursors to formal leases, the analysts added, saying other tech firms including Meta Platforms (META.O), opens new tab had previously made similar moves to lower capital spending. The note was published late on Friday but it picked up traction on social media platforms over the weekend, with several media outlets covering the development on Monday. Microsoft, the main backer of ChatGPT-maker OpenAI, did not immediately respond to a request for comment on Monday. Brokerage Jefferies, currently hosting the Microsoft investor relations team in Sydney, said the company has strongly denied any change to its data center plans. The company's shares, which underperformed most Big Tech stocks last year, rose about 0.5% in premarket U.S. trading. Any lease cancellations would mark a sharp shift for a company that months ago earmarked $80 billion in capital spending for this fiscal year, mostly for AI. Microsoft has called the spending crucial to easing supply bottlenecks that limit its ability to meet AI demand. The news could possibly indicate lower demand, Bernstein analyst Mark Moelder said, especially after lackluster quarterly results from major cloud companies, but it was also reflective of the capacity build-up at Microsoft in the past years. "Microsoft needed to meet demand and had a great deal of difficulty finding capacity. Management may, therefore, have rented, even at a meaningful premium, data centers and GPU capacity and negotiated more deals for additional future capacity than they needed," Moelder said. Reporting by Aditya Soni in Bengaluru; Editing by Sriraj Kalluvila Our Standards: The Thomson Reuters Trust Principles., opens new tab Suggested Topics:Artificial Intelligence

Microsoft Cancels Leases for AI Data Centers, Analyst Says

Microsoft Corp. has begun canceling leases for a substantial amount of datacenter capacity in the US, a move that may reflect concerns about whether it's building more AI computing than it will need over the long term, TD Cowen said in a report. OpenAI's biggest backer has voided leases totaling "a couple of hundred megawatts" of capacity, the US brokerage wrote Friday, citing channel checks or inquiries with supply chain providers. Microsoft has also stopped converting so-called statement of qualifications, which are agreements that usually lead to formal leases, TD Cowen said. That was a tactic rivals such as Meta Platforms Inc. employed previously, when it decided to cut back on capital spending, the brokerage wrote.

Microsoft pulls AI investments: Did DeepSeek force the retreat?

Microsoft has canceled some of its leases on data centers, totaling "a couple of hundred megawatts," in the U.S., as concerns about massive spending on artificial intelligence arise following the rapid rise of China's DeepSeek, according to a report from TD Cowen analysts released on Friday. The analysts, Michael Elias, Cooper Belanger, and Gregory Williams, noted this decision may indicate that Microsoft is in an oversupply position. The cancellation of data center leases comes at a time when investor confidence is wavering, particularly as uncertainty looms ahead of Nvidia's upcoming earnings report, which is projected to show slower revenue growth than the previous year. Nvidia's decline was exacerbated by a record market drop following DeepSeek's launch, where the tech industry lost more than $1 trillion in market capital. Microsoft did not respond to a request for comment regarding these lease cancellations. Furthermore, TD Cowen's report indicated that Microsoft has also paused converting statements of qualifications into formal leases, mirroring actions previously taken by other companies like Meta Platforms to reduce capital spending. Analysts suggested that Microsoft's retreat could be connected to OpenAI seeking services from Oracle following their partnership on a $500 billion AI project named Stargate. They reported that significant portions of Microsoft's global spending have been reallocated to the U.S., although it remains unclear why the company is scaling back on its U.S. data centers. Despite plans to spend $80 billion on AI data centers this fiscal year, according to statements from the company under CEO Satya Nadella, TD Cowen suggested a trend of retreat from these large-scale spending plans. Microsoft has allowed over a gigawatt of agreements on larger data center sites to expire and has walked away from deals involving about 100 megawatts each. In some cases, Microsoft cited facility and power delays as the reasons for ending leases, similar to tactics once used by Meta to curb capital expenditure. OpenAI's increasing ability to utilize cloud-computing services from alternative providers has further diminished its dependence on Microsoft, which was previously its sole cloud provider. Amid growing skepticism from investors regarding the substantial resources allocated by U.S. tech firms towards AI infrastructure -- especially given the advancing capabilities of DeepSeek at lower costs -- Microsoft's cancellations represent a significant pivot from its earlier momentum. Brokerage Jefferies indicated that any lease cancellations would mark a notable change for Microsoft, which had earmarked $80 billion for capital spending to alleviate supply bottlenecks hampering its capacity to meet AI demand. Bernstein analyst Mark Moelder highlighted that this development might indicate lower demand, especially following underwhelming quarterly results from major cloud companies. Moelder remarked that Microsoft's management may have overestimated the necessary data center and GPU capacity during previous boom periods.

Microsoft axes data center leases as DeepSeek casts doubt on massive...

Microsoft has axed some of its leases on data centers as DeepSeek's rapid rise casts doubt over massive US spending on artificial intelligence, according to a report. The Washington-based software giant has canceled leases in the US totaling "a couple of hundred megawatts," or about two huge data centers, according to a report from TD Cowen analysts released Friday. "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," the TD Cowen analysts wrote in a note. Microsoft's abandonment of its heavy data center push is the latest sign of shakiness in the tech industry after China's DeepSeek claimed to create a generative chatbot with a fraction of the time and money it took US rivals. Now, uncertain investors are anxiously awaiting chipmaker Nvidia's earnings on Wednesday. The earnings report is expected to show revenue climbed at a much slower pace than a year ago. Nvidia suffered the largest one-day drop in market history and tech stocks lost more than $1 trillion after DeepSeek's launch last month. Microsoft did not immediately respond to a request for comment. The TD Cowen analysts, Michael Elias, Cooper Belanger and Gregory Williams, said their "channel checks" of the supply chain also found Microsoft has slowed down on converting negotiated statements of qualifications, which usually lead to formal leases. It's unclear exactly why Microsoft, OpenAI's largest backer, is pulling back on US data centers. In a second report published on Monday, TD Cowen analysts suggested Microsoft's retreat could be due to OpenAI shifting to Oracle after the two companies agreed to partner on a $500 billion AI project known as Stargate. TD Cowen separately said its checks suggested Microsoft has reallocated a significant portion of its global spending to the US. Microsoft has been a frontrunner in the AI race, investing millions in the futuristic technology. The company has said it plans to spend $80 billion this year on AI data centers. TD Cowen said their channel checks suggested Microsoft was slowly retreating from these massive spending plans. The company, led by chief executive Satya Nadella, has let more than a gigawatt of agreements on larger data center sites expire, and has walked away from deals involving about 100 megawatts each, according to the analysts' report. In some situations, Microsoft has used facility and power delays as its justifications for ending leases - the same tactic used by Meta when the rival was trying to cut capital spending, TD Cowen wrote. OpenAI has recently become less dependent on Microsoft, now able to use cloud-computing services from competing providers. Microsoft had previously been OpenAI's sole cloud provider. The company still has a right of first refusal when OpenAI is looking for computing technology to power its AI models.

Microsoft draws back on DC leases, says it will meet demand

Investment bank claims software giant ditched 'at least' 5 land parcels due to potential 'oversupply' Microsoft has reportedly cancelled leases on datacenter capacity in the US, raising questions about whether the company may have overestimated demand for AI services and the compute power it needs to drive them. Financial services biz TD Cowen published a report claiming the Redmond megacorp was pulling back on datacenter spending as it may have found itself "in an oversupply position." It says Microsoft has cancelled leases in America that add up to a couple of hundred MW of capacity with at least two datacenter operators, is not proceeding with signing other negotiated leases, and has re-allocated a considerable portion of its international spend to the United States. TD Cowen is a New York-based investment bank and financial services division of TD Securities, which operates as a broker-dealer and investment manager. It claims in its industry update that Microsoft is using facility/power delays as a justification for cancelling the leases. This is the same tactic Facebook owner Meta previously used to cancel multiple bit barn leases in the US when it cut back on a $48 billion capex program related to the metaverse, the market watcher says, implying that Microsoft is also likely decreasing capex investment. Microsoft has also pulled back on converting negotiated Statement of Qualification documents (sometimes referred to as a "500") into signed lease agreements, the investment bankers claim. TD Cowen says it is unclear if this is simply a delay in 500-to-lease conversion or if it is an outright termination of the agreement. However, it notes that the conversion rate of "500 docs" into a signed lease is usually "close to 100 percent", with the datacenter providers using that as the signal to start construction. At the start of this year, Microsoft said it was on track to pour approximately $80 billion into AI-enabled datacenters during its financial year 2025, to train and deploy AI models and cloud-based applications based on them around the world. This was to meet expected demand for AI development and cloud services based on it. However, in the Windows-maker's most recent financial report, it talked of not being able to keep up with the clamor for AI, while there were signs of waning cloud demand. So if the industry giant isn't growing cautious about the prospects for business interest in AI, why the cutbacks in bit barn capacity leasing? According to TD Cowen, Microsoft recently walked away from at least five land parcels it had secured in multiple Tier 1 markets, and says this combined with the datacenter capacity it is giving up "in our view indicates the loss of a major demand signal that Microsoft was originally responding to". It believes this is because of OpenAI. Microsoft was procuring capacity based on a forecast that included greater OpenAI workloads, but there is talk of late that the AI developer is switching to another compute provider. As a result "there is capacity that it has likely procured... where the company may have excess datacenter capacity relative to its new forecast," TD Cowen states. So it may simply be the case that Microsoft had banked on needing datacenter capacity to serve OpenAI that is now surplus to requirement, or it may be that Redmond is concerned by the uncertainty that actions by the Trump administration are causing in the global marketplace. A Microsoft spokesperson told us: "Thanks to the significant investments we have made up to this point, we are well positioned to meet our current and increasing customer demand. Last year alone, we added more capacity than any prior year in history." "While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions. This allows us to invest and allocate resources to growth areas for our future. Our plan to spend over $80 billion on infrastructure this FY remains on track as we continue to grow at a record pace to meet customer demand." Analysts are rather more sceptical about the level of end user demand and business value, with some saying investment in AI datacenters continues to heavily outweigh the amount enterprise are forking out on AI software licenses. ®

Microsoft is canceling data center leases, analysts say -- and the stock slips

Microsoft (MSFT-1.04%) shares fell slightly on Monday following analyst reports that the company canceled several U.S. data center leases, potentially signaling an oversupply of AI infrastructure. On Friday, analysts at TD Cowen (TD-0.02%) said in a note that the tech giant had canceled leases worth "a couple of hundred megawatts," or approximately two data centers worth of capacity. In some cases, Microsoft said "facility/power delays" were a reason for termination, analysts said in the note, adding that Meta (META-1.54%) had previously used a similar justification to cancel data center leases. TD Cowen also noted that Microsoft "has pulled back on" converting statement of qualification, agreements that typically turn into traditional leases. The analysts expressed uncertainty about whether Microsoft's actions represent a temporary delay or a complete termination of the agreements. The company is potentially "in an oversupply position," with the note adding that Microsoft has turned down other data center and land acquisition deals. The TD Cowen analyst wrote that this indicated "the loss of a major demand signal that Microsoft was originally responding to and that we believed the shift in their appetite for capacity is tied to OpenAI." The company's stock was down by around 1.2% at noon and has fallen by more than 4% so far this year. Microsoft did not immediately respond to a request for comment. Last week, The Information reported that OpenAI has told investors that it expects the Stargate Project -- which it has partnered with SoftBank and Oracle (ORCL+1.54%) on -- to provide three-quarters of the computing power it needs for its artificial intelligence models by the end of the decade -- a shift away from Microsoft. Bank of America (BAC+0.36%) analysts said in a note on Monday that Microsoft is "strongly refuting" changes to its data center strategy. "They [Microsoft] make investments based on a 10-year view on demand for cloud and AI demand," the Bank of America analysts said. "They tweak their forecasts up and down on this overtime on a regional basis depending on which regions need to be prioritized."

Microsoft Cancels Some Data Center Leases, Raises Questions on AI Expansion Strategy - Microsoft (NASDAQ:MSFT)

Microsoft Corp MSFT has begun canceling leases for significant data center capacity in the U.S., possibly signifying AI computing overcapacity. The Big Tech giant has canceled leases totaling hundreds of megawatts of capacity, Bloomberg cited TD Cowen Friday, citing channel checks. Microsoft has also stopped converting agreements that usually lead to formal leases, Bloomberg cited TD Cowen. Also Read: Taiwan Semiconductor Too Big For The Index, Regulator Considers Lifting Weight Cap Previously, Meta Platforms Inc META and other rivals employed such strategies to cut back on capital spending. Microsoft recently reiterated its plans to spend $80 billion on AI data centers this fiscal year. During quarterly earnings call, CEO Satya Nadella told Bloomberg that Microsoft must sustain spending to meet "exponentially more demand." Chinese upstart DeepSeeks's open-source AI model led to Wall Street questioning the sustainability of Microsoft, Meta, and Amazon.com Inc's AMZN aggressive capex outlays on AI models. Recently, Microsoft debuted the Majorana 1 quantum chip for industrial-scale problem-solving. Last December, Alphabet Inc's GOOG GOOGL Google announced its quantum chip Willow. Wall Street firms, including Bank of America, DA Davidson, RBC Capital, JPMorgan, Truist, Piper Sandler, and Goldman Sachs, had highlighted how Azure results overshadowed the potential AI upside during the second-quarter report. Price Action: MSFT stock is down by 1.30% to $402.92 at the last check on Monday. Also Read: Apple Expands Apple TV+ to Android, Eyes Subscription Growth and Ecosystem Expansion, Analyst Says photo via Shutterstock MSFTMicrosoft Corp$403.39-1.18%OverviewAMZNAmazon.com Inc$213.44-1.45%GOOGAlphabet Inc$182.750.64%GOOGLAlphabet Inc$180.860.67%METAMeta Platforms Inc$666.51-2.49%Market News and Data brought to you by Benzinga APIs

After Its CEO Expressed Hesitation About AI, Microsoft Backing Out of Expensive New Data Centers

Last week, Microsoft CEO Satya Nadella made an eyebrow-raising appearance on a podcast dismissing the hype around claims of having achieved "some [artificial general intelligence] milestone" as "nonsensical benchmark hacking." Most strikingly, Nadella admitted that AI simply hasn't generated much value so far, arguing that economic growth due to the tech would be a much more compelling demonstration of AI's actual accomplishments. It was an unusually muted response given the tens of billions of dollars the tech giant has poured, and is planning to pour, into the development of AI and the infrastructure to support it -- despite real-world applications for the tech remaining few and far between. Is Nadella worried about a looming dot-com-like bubble that's set to burst? Was the emergence of Chinese AI startup DeepSeek's hyper-efficient reasoning AI model, which shook up the entire industry last month, an early warning shot? Now, investment banking company TD Cowen has informed Bloomberg that Microsoft has canceled some leases for the buildout of its US data center capacity, further bolstering the possibility that the company is realizing it was overzealous in its plans to invest in the tech. While it's too early to draw any definitive lines between Nadella's comments last week and the latest developments, it's certainly looking like some of the major players in the AI space are increasingly worried about overleveraging themselves. "The canary just died," one Bluesky user wrote in response to the news. "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," TD Cowen analysts wrote in a note, as quoted by Bloomberg. Microsoft subsequently confirmed to Bloomberg that it was still committed to spending some $80 billion on AI infrastructure worldwide, but declined to comment on the news that it was canceling leases. "While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions," a spokesperson told the publication. It's also entirely possible that there could be a more mundane, business-based explanation. In a separate report, TD Cowen suggested that Microsoft was canceling the leases as OpenAI is significantly shifting its spending from Microsoft to SoftBank as part of president Donald Trump's massive, $500 billion Stargate AI infrastructure project. "To me this all looks and sounds like business as usual," Mizuho Securities analyst Jordan Klein wrote in a note, as quoted by Bloomberg. "A company this large and with $80 billion of annual spend has the right to move in and out of data center leases, many of which were never officially signed." Other companies, like Google owner Alphabet, Amazon, and Meta have pledged to spend their own fortunes building AI infrastructure. Alphabet boosted its AI investments to a whopping $75 billion over the weekend, showing there's still plenty of hype out there. Even if Microsoft's latest actions were a sign of "business as usual," the optics alone aren't great. Any news that would undermine those sky-high ambitions or signal that the tech may never turn a profit could play into fears of a bubble. And considering the chaos DeepSeek caused, investors are already jittery. Given AI's very real struggles to make money, it's hard not to read into the drama. During his podcast appearance last week, Nadella told Patel that "at some point, the supply and demand have to map." "You can go off the rails completely when you are hyping yourself with the supply-side, versus really understanding how to translate that into real value to customers," he added.

Microsoft scraps some data center leases as Apple, Alibaba double down on AI - SiliconANGLE

Microsoft scraps some data center leases as Apple, Alibaba double down on AI Microsoft Corp. has canceled multiple data center leases and may scrap several more that are currently in the works, Bloomberg reported today. A significant percentage of tech giants' data center spending is driven by artificial intelligence demand. Microsoft's lease cancellations raise the possibility the company is seeing less AI demand than originally expected, which could have implications for the broader market. But while Microsoft may be scaling back, other tech giants are doubling down: Apple Inc. and Alibaba Group Holding Ltd. both announced multimillion-dollar AI infrastructure investments this morning. Microsoft's lease cancellations were detailed on Friday in a note from TD Cowen analysts. According to Bloomberg, the investment bank believes that Microsoft has voided contracts for data centers with about 200 megawatts in combined capacity. One megawatt corresponds to the electricity usage of several hundred households. Microsoft reportedly told suppliers that it's canceling the contracts on account of delays in facility construction and power delivery. According to Bloomberg, Meta Platforms Inc. once used the same arguments as part of a push to reduce capital expenses. Microsoft is reportedly scaling back its data center investments in other ways as well. Before a company signs a data center lease, it often inks an agreement called a statement of qualifications with its construction partners. Microsoft has reportedly pulled back on turning statements of qualifications into formal leases, although it's currently unclear if the delay may lead to a termination of the deals in question. According to TD Cowen, Microsoft has also allowed agreements for existing sites representing more than one gigawatt of capacity to expire. One gigawatt corresponds to 1,000 megawatts. The news comes a few weeks after Microsoft revised the terms of its multibillion-dollar partnership with OpenAI. Originally, Microsoft was the AI provider's sole cloud provider. The revised terms allow OpenAI to shift some workloads to competing cloud providers, which TD Cowen analysts highlighted as a potential factor behind Microsoft's data center lease cancelations. Despite the change to its OpenAI contract, Microsoft last month committed to spending about $80 billion on AI-enabled data centers through the end of its 2025 fiscal year. The company reaffirmed this plan in a statement today, saying that "our plans to spend over $80 billion on infrastructure this FY remains on track as we continue to grow at a record pace to meet customer demand." The report about Microsoft's revised data center roadmap coincided with the announcement of not only but two major AI investment initiatives. Apple this morning pledged to spend $500 billion in the U.S. over four years. The company is planning "accelerated investments in AI and silicon engineering" as part of the initiative. The effort will see Apple add data center capacity in North Carolina, Iowa, Oregon, Arizona and Nevada. The company will open a manufacturing facility in Houston to assemble servers for its data centers. The 250,000-square-foot hub will come online next year and is expected to create thousands of jobs. The servers it will produce are set to power Apple Intelligence, a suite of AI features the company introduced for iPhones last year. According to influential Apple analyst Ming-Chi Kuo, the company plans to equip the servers with AI-optimized chips. The Wall Street Journal, in turn, reported that Apple would have spent much of the $500 billion allocated to the initiative either way as part of its usual capital expenditures. Alibaba, China's largest e-commerce company, announced its own multibillion AI investment today. The company revealed plans to invest 380 billion yuan, or about $53 billion, in AI infrastructure over three years. That's reportedly more than what Alibaba spent on AI and its public cloud platform over the past decade.

Microsoft Pulls Plug On AI Data Center Leases, Says Analyst: Oversupply Situation Likely - Microsoft (NASDAQ:MSFT), Meta Platforms (NASDAQ:META)

Microsoft Corp. MSFT has reportedly begun to cancel leases for a significant portion of its AI data center capacity in the United States, as per a recent report by TD Cowen. What Happened: TD Cowen disclosed on Friday that Microsoft has nullified leases equivalent to "a couple of hundred megawatts" of capacity, Bloomberg reported on Monday. Additionally, the tech giant has also ceased the conversion of so-called statements of qualifications, which usually lead to formal leases. This strategy is reminiscent of tactics previously employed by competitors like Meta Platforms Inc. META when they decided to reduce capital expenditure. TD Cowen's report also hints at Microsoft's gradual retreat from data center construction and acquisition. The report indicates that Microsoft has let agreements totaling over a gigawatt at larger sites expire and has withdrawn from several deals, each involving approximately 100 megawatts. SEE ALSO: 'Biggest Cage Match Ever' -- Mark Cuban Warns Of A Coming Clash, Says Musk's AI Implementation Will Directly Challenge Trump's Grip On Control Why It Matters: This development comes unexpectedly as in January, Microsoft announced its plans to invest around $80 billion in developing AI-powered data centers and deploying AI and cloud-based applications globally. Microsoft's possible reduction in spending and data center construction sparks concerns about whether the company is becoming more cautious about future demand. According to TD Cowen's analysts, these changes may suggest that Microsoft is potentially facing an oversupply situation. They also speculated that Microsoft's partnership with OpenAI could be shifting in ways that mean the software giant won't need the same level of investments. The analysts, however, stated that they are awaiting more details on this. In January, Microsoft paused construction on parts of its ambitious data center project in Mount Pleasant, citing changes in technology and design re-evaluation. This move, coupled with the recent lease cancellations, could signal a shift in Microsoft's data center strategy. READ MORE: Nvidia Set For 'Clear Beat And Raise Special' As AI Demand Surges, Says Dan Ives Image via Shutterstock Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors. METAMeta Platforms Inc$685.000.21%OverviewMSFTMicrosoft Corp$410.360.53%Market News and Data brought to you by Benzinga APIs

Analyst says Microsoft is cutting AI data center spending, which may have led to market sell-off

An analyst report from TD Cowen on data centers and Microsoft raised fears about the sustainability of the artificial intelligence trade and may have had a hand in Friday's big market sell-off. "Our channel checks indicate that MSFT has 1) cancelled leases in the U.S. totaling 'a couple of hundred MWs' with at least two private data center operators, 2) has pulled back on the conversion of SOQ's to leases, and 3) has re-allocated a considerable portion of its international spend to the U.S.," stated the Friday note by Michael Elias, a data centers analyst. The analyst said SOQs, or statement of qualifications, are typically the pre-cursor to signing a data center lease. "MWs" are megawatts. "When coupled with our prior channel checks, it points to a potential oversupply position for MSFT," Elias continued. The report is causing buzz on Wall Street with traders passing it around over the weekend. "Understandably, many investors are worried about what this means -- particularly if this is an early sign that AI demand is plateauing and that we are no longer in compute shortage," stated a note from the trading floor of Jefferies. The report "was likely one of the drivers for the tech sector selloff." On Friday, the Dow Jones Industrial Average tumbled 700 points in the worst sell-off of 2025 so far. Shares of Nvidia , the most popular AI-linked trade, were down 4%, as was Broadcom 's stock. Data center stocks Digital Realty Trust and Equinix fell 4% and 2% respectively. Super Micro Computers lost 5%. Energy stock linked to AI growth, Vistra Corp , tumbled nearly 8% on Friday. The selling in the tech sector picked up in the afternoon Friday as news of the TD report spread. Most of these shares were stable or higher in premarket trading Monday. The TD report said that Microsoft terminated some leases using "facility/power delays as justification." CNBC reached out to Microsoft for comment, but has not yet receive a response. Jefferies' trading desk said that Microsoft investor relations "strongly refuted" to the firm any change to its data center strategy. Microsoft because of its strategic partnership with OpenAI is considered one of the key drivers of the AI trade, along with Meta. Wall Street is closely watching their capital expenditure plans for signals as to whether the AI trade will continue. After China's DeepSeek emerged earlier this year with a competitive AI model supposedly developed for much cheaper than OpenAI and others, it caused a big sell-off in AI-related stocks by raising concerns that perhaps all the datacenter capacity being built out would not be needed. As Microsoft and other mega-tech companies reported earnings in the past month, they reiterated or raised their plans for AI spending , assuaging some of those fears. The TD report has seemed to rekindle some of those worries once again.

Microsoft Data Center Lease Cancellation Spurred AI Spending Cut Fears 'More Smoke Than Fire,' Says Top Analyst -- Redmond Reaffirms $80 Billion Investment Plan - Microsoft (NASDAQ:MSFT), Advanced Micro Devices (NASDAQ:AMD)

Microsoft Corporation MSFT has pushed back against concerns about its AI infrastructure spending after a report said the company canceled data center leases, leading to investor panic and a market sell-off. Now, tech analyst Dan Ives dismissed the fears as "more smoke than fire," saying that Microsoft's long-term AI investment strategy remains intact. What Happened: On Friday, TD Cowen analysts circulated a report stating Microsoft had canceled leases with at least two private data center operators. However, on Monday, Microsoft told CNBC that its $80 billion AI infrastructure investment remains on track, stating, "While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions." On the same day, Ives, Wedbush's global head of technology research, dismissed the panic, stating, "Microsoft does this all the time. They foreshadowed it even on the conference call. This is more smoke than fire." See Also: Microsoft CEO Satya Nadella Warns Of Dot-com-Like AI Bubble, Pushes For Measuring AI Impact With GDP Growth: 'Self-Claiming AGI Milestone Is Just Nonsensical Benchmark Hacking' He added, "Any sell-off here, this is a name that's way oversold, and nothing here in any way makes us nervous." Why It's Important: Investor anxiety surrounding AI infrastructure spending has been heightened by DeepSeek's low-cost model R1's rise. As per DeepSeek, the model is built for under $6 million and outperformed leading U.S. models, including those from OpenAI. Despite that, Ives remains bullish on Microsoft and Nvidia Corporation NVDA, arguing that demand for AI computing remains strong. DeepSeek caused Nvidia to drop 17% in a single session. Since Jan. 27, Nvidia shares have rebounded 10.02%, while rival Advanced Micro Devices AMD has declined 6%. Nvidia's upcoming earnings report on Wednesday, Feb. 26 is expected to provide further clarity, with Ives predicting a $2 billion revenue beat. This year, big tech is ramping up AI investments, with Amazon, Meta, Microsoft, and Alphabet pouring a record $320 billion into AI infrastructure, up from $246 billion in 2024. Amazon leads with over $100 billion, while Microsoft and Alphabet each plan around $80 billion, and Meta commits more than $60 billion. Price Action: Microsoft's stock closed at $404 on Monday, dropping 1.03% for the day. Year-to-date, it is down 3.48%, and over the past 12 months, it has declined 0.87%, according to Benzinga Pro. Photo Courtesy: dotshock on Shutterstock.com Read Next: OpenAI's Sam Altman Flip Flops On Trump After $500 Billion Stargate AI Project, Says 'I Wish I Had Done More Of My Own Thinking' Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors. AMDAdvanced Micro Devices Inc$108.15-2.43%OverviewMSFTMicrosoft Corp$404.00-1.03%NVDANVIDIA Corp$130.95-2.59%Market News and Data brought to you by Benzinga APIs