An analyst report suggesting a potential slowdown in Microsoft’s data center capacity leasing has sparked market concern, fueling skepticism among investors worried about the ongoing AI-led stock market surge.
TD Cowen analysts, in a note released on Friday, indicated that the tech giant had scrapped leases for significant data center capacity within the United States. They suggest this could point to potential oversupply as Microsoft streamlines its infrastructure to support its artificial intelligence initiatives.
Citing supply-chain checks, the brokerage, which was led by Michael Elias, said Microsoft has canceled leases representing ‘a couple of hundred megawatts’ of capacity with no less than two private data center operators.
A Microsoft spokesperson stated that the company still plans to invest upward of $80 billion in AI and cloud capacity over the current fiscal year. The spokesperson added, ‘While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions.’
While Microsoft’s shares experienced a modest decline, losing around 1% on Monday, related companies faced more significant impacts. Shares of Siemens Energy, a German firm, and French company Schneider Electric fell 7% and 4%, respectively. Constellation Energy and Vistra, U.S. utility companies that are data center power providers, saw their shares drop 5.9% and 5.1%, respectively. Tech giants, as part of a broader Nasdaq selloff, were trading lower as well.
Investor skepticism regarding the billions of dollars that U.S. tech firms have invested in AI infrastructure has grown. Reasons involve the comparatively slow financial returns, as well as from substantial breakthroughs at the Chinese startup DeepSeek. DeepSeek demonstrated AI technology at a significantly lower cost than its Western counterparts.
TD Cowen analysts added that Microsoft has also paused converting statements of qualifications. This represents an early stage precursor to formal leases. The report noted that other tech companies, like Meta Platforms, have previously taken similar steps to reduce capital spending.
‘I don’t construe it as any change up in the big macro picture. Their desire is to build out these data centres,’ Dan Morgan, senior portfolio manager at Synovus Trust, said. Synovus Trust owns shares in Microsoft.
Any lease cancellations would be a clear shift for Microsoft. The tech company has spent billions on data centers to overcome supply bottlenecks that have limited Microsoft’s ability to cater to the growing AI-driven demand.
Bernstein analyst Mark Moelder said the news ‘could possibly indicate lower demand,’ particularly after cloud companies’ underwhelming recent quarterly figures. However, it also reflected the considerable increase in capacity built by Microsoft in the past few years. Moelder added, ‘Microsoft needed to meet demand and had a great deal of difficulty finding capacity. Management may, therefore, have rented, even at a meaningful premium, data centres and GPU capacity and negotiated more deals for additional future capacity than they needed.’
