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.
Microsoft cancels data center leases amid AI spending concerns
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.
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