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 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.
