Microsoft has scaled back data center projects in the US and Europe, representing two gigawatts of electricity, according to TD Cowen analysts. The decision, made in the last six months, stems from an oversupply relative to the company’s current demand forecasts.
The pullback in capacity leasing was largely driven by Microsoft’s decision not to support additional training workloads from OpenAI, the creator of ChatGPT, according to analysts led by Michael Elias. Investor concerns over the substantial spending by US tech firms on artificial intelligence have increased, fueled by slow returns and the emergence of Chinese startup DeepSeek, which demonstrated AI technology at a significantly lower cost than its Western counterparts.
TD Cowen’s supply chain analysis indicates that Alphabet’s Google has stepped in to fill the capacity in international markets, taking up some of the slack left by Microsoft. Meta Platforms is doing the same in the US. Microsoft stated that while it might “strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions.” Furthermore, the company confirmed its plans to invest US$80 billion ($127 billion) on AI infrastructure in the current fiscal year are on track.
In February, the TD Cowen analysts reported that Microsoft had scrapped leases totaling “a couple of hundred megawatts” of capacity with at least two private data center operators. Earlier this month, AI cloud startup CoreWeave, which offers access to data centers, stated it hadn’t experienced any contract cancellations, despite a Financial Times report indicating Microsoft, its largest customer, had moved away from certain agreements.
After the DeepSeek reveal in January, Microsoft and Meta executives defended their considerable AI spending, highlighting its crucial role in maintaining a competitive edge in the burgeoning field. Alphabet has announced it will invest US$75 billion in its AI buildout this year, a 29 percent increase from Wall Street’s expectations, while Meta has committed up to US$65 billion.
