TLDR:
- Microsoft has canceled multiple data center leases in the US totaling “hundreds of megawatts” of capacity and let expire over 1 gigawatt of larger site agreements
- The company has walked away from several 100+ megawatt deals and at least five land parcels intended for data centers
- Microsoft is redirecting international spending back to the US, suggesting a slowdown in global leasing activity
- The company maintains its $80 billion infrastructure spending target for fiscal year 2025 despite these changes
- TD Cowen analysts suggest these moves could be related to potential oversupply concerns and OpenAI’s pivot toward other partners like Oracle
Microsoft Corporation has begun canceling data center leases across the United States while redirecting international spending back home, according to a recent TD Cowen report. The tech giant has voided leases amounting to “a couple hundred megawatts” of capacity and allowed over one gigawatt of larger site agreements to expire.
The company has walked away from multiple deals involving approximately 100 megawatts each and abandoned at least five land parcels originally intended for additional data center capacity. These moves represent a notable shift in Microsoft’s data center expansion strategy.
TD Cowen’s analysis, based on channel checks with supply chain providers, reveals that Microsoft has also stopped converting statements of qualification into formal leases. These agreements typically serve as precursors to official lease arrangements, similar to tactics previously employed by Meta Platforms when reducing capital spending.
The pullback extends beyond US borders, with Microsoft redirecting a portion of its planned international spending to domestic markets. This reallocation suggests a substantial slowdown in international leasing activity, according to TD Cowen analysts.
Despite these changes, Microsoft maintains its commitment to spend $80 billion on infrastructure this fiscal year. In a statement Monday, a company spokesperson emphasized, “While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions.”
The timing of these decisions coincides with recent developments in the AI landscape. Chinese startup DeepSeek recently released an open-source AI model that reportedly rivals US technology capabilities at a lower cost, prompting increased scrutiny of big tech companies’ massive AI infrastructure investments.
Oversupply Concerns
TD Cowen analysts Michael Elias, Cooper Belanger, and Gregory Williams suggest these moves might indicate Microsoft is addressing potential oversupply concerns, though they stress this is their interpretation based on available information.
The strategy shift has already impacted European markets, where stocks tied to the energy sector declined following the news. Companies like Schneider Electric SE and Siemens Energy AG saw their stock prices drop as investors processed implications for power demand from data centers.
Microsoft’s relationship with OpenAI may be evolving in ways that reduce its need for extensive data center investments. In January, OpenAI and SoftBank Group Corp. announced a joint venture called Project Stargate, planning to invest up to $500 billion in data centers and AI infrastructure.
The company recently modified its agreement with OpenAI, allowing the AI startup to use cloud-computing services from other providers. While Microsoft retains right of first refusal for OpenAI’s computing needs, this change suggests a more flexible approach to infrastructure requirements.
Bernstein analysts note that these developments could indicate a sustained slowdown in growth for Microsoft’s Azure cloud computing division. Azure was previously expected to grow between 31% and 32% in the fiscal third quarter, below analyst expectations.
CEO Satya Nadella addressed infrastructure spending during a January earnings call, emphasizing the need to meet “exponentially more demand.” However, he also mentioned efforts to improve server cost efficiency.
TD Cowen’s latest research suggests Microsoft’s pullback might be connected to OpenAI’s shift toward alternative partners, including Oracle Corp. The analysts view this as “net neutral for third-party data center demand.”
The news arrives as critics continue to question the practical applications for AI, even as major tech companies commit billions to data center infrastructure for AI service development and hosting.
Microsoft’s stock showed minimal movement in premarket trading Monday following the news, with shares trading marginally higher.
