Microsoft Scales Back Data Center Leases Amid AI Infrastructure Shift

Microsoft dropping datacenter leases isn't AI Armageddon

Why lease space that can't power or cool 120kW racks - or the next-gen 600kW monsters? Comment Microsoft has walked away from negotiations to lease two gigawatts worth of datacenter capacity in the US and Europe, and has deferred and cancelled other datacenter leases, according to a new report from investment bank TD Cowen. The bank's analysts feel Microsoft's lease cancellations were "largely driven by the decision to not support incremental Open AI training workloads." The report comes just over a month after the same analysts revealed Microsoft had terminated leases for several hundred megawatts of datacenter capacity in the US. For some the cancellations are evidence that the AI boom is about to go bust. However, we'd argue there's a far simpler explanation as to why Microsoft might be pulling back on its datacenter leases: many datacenters can't handle the power and cooling demands created by high-end AI hardware . Nvidia's massive NVL72 rack-scale systems promise 30x or better performance for inference workloads, and four times better training performance compared to its Hopper GPUs. That performance comes at the expense of denser racks, higher power consumption and more waste heat production. Racks housing Nvidia's latest are rated for 120kW of power, three times that of the typical Hopper rack. Liquid cooling is no longer an option but an inescapable requirement. As TD Cowen notes, hyperscalers and cloud providers must redesign their datacenters to accommodate super-dense, power-guzzling devices - and doing so is far from simple. Microsoft signing leases for datacenters that weren't built to handle Nvidia's latest kit - and whatever comes next - would therefore be short-sighted. Datacenter capacity planning, as Omdia Principal Analyst Alan Howard tells The Register, "is a very tricky game, and the least preferred scenario is having more demand than capacity. The whole process of acquiring land and securing power is cheap compared to executing." If the datacenters or colocation facilities Microsoft planned to lease can't cope with the demands of these denser systems, it's not hard to see why the software giant would walk away and focus on building dedicated facilities or shifting to more suitable locations. Microsoft has already signaled a belief that all-new datacenter designs are needed, and in 2024 even detailed its plans for such facilities. TD Cowen, however, noted that bringing greenfield datacenter capacity online takes time. Shortages of key components and energy supply aren't helping the situation. It currently takes roughly 24 months to build a datacenter from scratch, Omdia's Howard said, before noting xAI's Colossus cluster in Tennessee was built in ten months. TD Cowen claims that Microsoft has directed its datacenter partners to begin retrofitting existing facilities to support liquid cooling. And, we'll note, it is possible to use in-aisle coolant reservoirs, distribution units, and liquid-to-air heat exchangers to support liquid-cooled systems in existing equipment halls. In fact, the bank's analysis suggest that as AI workloads shift from training to inferencing, retrofits may be a better indicator of growth than new leases. "We increasingly believe that the initial indicator of inference demand will be the velocity of hyperscale retrofits, rather than the velocity of third-party leasing in major markets for incremental child deployments within existing availability zones," the document states. However, with Nvidia already planning 600kW racks, it remains to be seen if retrofits can satisfy users' needs. Along with retrofitting its new facilities, it's also worth noting that Microsoft is already sitting on a substantial quantity of Hopper GPUs, many of which have been tied up running OpenAI's training workloads. If Microsoft is indeed doing less training work for OpenAI, as TD Cowen claims, Redmond can transition that compute capacity to its own inferencing workloads, or rent it to customers. In a statement provided to The Register, a Microsoft spokesperson said the company remains committed to spending $80 billion on infrastructure during its 2025 fiscal year. "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," the spokesperson said. ®

Microsoft pulls back from more data center leases in US and Europe, analysts say

March 26 (Reuters) - Microsoft (MSFT.O), opens new tab has abandoned data center projects set to use 2 gigawatts of electricity in the U.S. and Europe in the last six months due to an oversupply relative to its current demand forecast, TD Cowen analysts said on Wednesday. The tech giant's backtracking includes deferrals and cancellations of existing data center leases in both regions in the past month, the analysts led by Michael Elias said in a note. Microsoft's withdrawal from new capacity leasing was largely led by the decision not to support additional training workloads from ChatGPT maker OpenAI, according to the note. Investor skepticism about the hefty artificial intelligence spending by U.S. tech firms has increased due to slow payoffs and the rise of Chinese startup DeepSeek, which showcased AI technology at a much lower cost than its Western rivals. TD Cowen's supply chain checks indicate that Microsoft's pullback has led to Alphabet's (GOOGL.O), opens new tab Google stepping in to backfill the capacity in international markets, while Meta Platforms (META.O), opens new tab does the same in the U.S. Microsoft, which plans to invest over $80 billion in AI and cloud capacity this fiscal year, did not immediately respond to Reuters' request for comment. The TD Cowen analysts said in February that Microsoft had scrapped leases totaling "a couple of hundred megawatts" of capacity with at least two private data center operators. Reporting by Juby Babu in Mexico City; Editing by Shreya Biswas Our Standards: The Thomson Reuters Trust Principles., opens new tab Suggested Topics:Artificial Intelligence

Is Microsoft planning to eliminate AI-related data center projects across Europe and US? Bloomberg report says so

Microsoft doesn't deny the report but says it's investing $80 billion in infrastructure We recently reported Microsoft had cancelled leases with at least two private data center operators in the US, totaling "a couple hundred megawatts," and how the company was also not converting "so-called statements of qualifications into leases," according to claims from TD Cowen analysts. Shortly after that news broke, Microsoft pulled out of a $12 billion deal with CoreWeave (the "WeWork of AI"), passing on buying more data center capacity from the AI hyperscaler. That option was snapped up by OpenAI, but as it counts Microsoft as its biggest backer, it was essentially paying CoreWeave with Microsoft money! Microsoft appears to be taking a more tactical approach to AI spending, a move that is echoed in a new Bloomberg report quoting TD Cowen analysts saying Microsoft has walked away from additional data center projects in the US and Europe. Bloomberg writes, "Microsoft's retrenchment in the last six months included lease cancellations and deferrals, the TD Cowen analysts said in their latest research note. Alphabet Inc.'s Google had stepped in to grab some leases Microsoft abandoned in Europe, the analysts wrote, while Meta Platforms Inc. had scooped up some of the freed capacity in Europe." Responding to the article, Microsoft pointed out that it was still on track to spend about $80 billion investing in growing infrastructure projects. "Thanks to the significant investments we have made up to this point, we are well positioned to meet our current and increasing customer demand," a Microsoft spokesperson said in a statement. "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." Bloomberg adds TD Cowen analysts Michael Elias, Cooper Belanger, and Gregory Williams said, "We continue to believe the lease cancellations and deferrals of capacity points to data center oversupply relative to its current demand forecast."

AI stocks weak on word Microsoft drops data center leases in U.S. and Europe By Investing.com

Investing.com -- There are more jitters in the AI sector Wednesday after analysts at TD Cowen highlighted that their channel checks show Microsoft is canceling data center leases in the U.S. and Europe, following up on his earlier finding. Across the AI sector, AI chip makers NVIDIA (NASDAQ:NVDA) and Broadcom Inc (NASDAQ:AVGO) are each down 5%, while AI server makers Dell Technologies Inc (NYSE:DELL) and Super Micro (NASDAQ:SMCI) are down 3% and 9%, respectively. Specifically, analyst Michael Elias said that Microsoft (NASDAQ:MSFT) walked away from +2GW of capacity in both the U.S. and Europe in the last six months that was in the process of being leased and has both deferred and canceled existing data center leases in both the U.S. and Europe in the last month. Elias first warned about Microsoft's data center activity slowing in February. The analyst views the pullback as being largely driven by the decision not to support incremental Open AI training workloads. That being said, they still believe that the lease cancellations and capacity deferrals indicate an oversupply of data centers. "As such, we believe the lease deferrals are intended to provide Microsoft with a medium-term runway of capacity in major markets to support cloud/inference workloads, with Microsoft canceling leases for capacity that exceeds its updated medium-term capacity needs," the analyst commented. On a positive note, Elias said that competitor Google (NASDAQ:GOOGL) is stepping in to backfill the capacity that Microsoft walked away from in international markets. In the U.S., Meta (NASDAQ:META) is backfilling the capacity. "The ramp in demand from Google is driven by what we increasingly believe is a global capacity shortfall as its internal demand ramped amid its late August pullback from the market (which we highlighted in September 2024) stemming from an internal initiative to increase the utilization of its existing data center fleet," the analyst said. " As for Meta, the demand ramp comes as it is meaningfully increasing its data center capacity in support of Llama." On OpenAI, the firm checks indicate that the company is increasingly securing data center capacity directly from third parties, exemplified by its deal with CoreWeave. Additionally, OpenAI has significant long-term capacity ambitions, planning multiple Stargate projects, each ranging from 800MW to 1.5GW, potentially exceeding 6GW in total. To meet these needs, OpenAI is hiring talent from other hyperscalers with expertise in design, construction, and capacity planning, suggesting a move toward self-building data centers in the medium to long term.

Microsoft pulls back from more data center leases in US and Europe, analysts say

(Reuters) - Microsoft has abandoned data center projects set to use 2 gigawatts of electricity in the U.S. and Europe in the last six months due to an oversupply relative to its current demand forecast, TD Cowen analysts said on Wednesday. The tech giant's backtracking includes deferrals and cancellations of existing data center leases in both regions in the past month, the analysts led by Michael Elias said in a note. Microsoft's withdrawal from new capacity leasing was largely led by the decision not to support additional training workloads from ChatGPT maker OpenAI, according to the note. Investor skepticism about the hefty artificial intelligence spending by U.S. tech firms has increased due to slow payoffs and the rise of Chinese startup DeepSeek, which showcased AI technology at a much lower cost than its Western rivals. TD Cowen's supply chain checks indicate that Microsoft's pullback has led to Alphabet's Google stepping in to backfill the capacity in international markets, while Meta Platforms does the same in the U.S. Microsoft, which plans to invest over $80 billion in AI and cloud capacity this fiscal year, did not immediately respond to Reuters' request for comment. The TD Cowen analysts said in February that Microsoft had scrapped leases totaling "a couple of hundred megawatts" of capacity with at least two private data center operators. (Reporting by Juby Babu in Mexico City; Editing by Shreya Biswas)