Microsoft has reportedly canceled leases for significant data center capacity in the United States, raising concerns about a potential oversupply. TD Cowen analysts suggest this shift could be a strategic adjustment as the tech giant expands its artificial intelligence infrastructure.
Investor skepticism has been growing regarding the massive investments U.S. tech firms are making in AI infrastructure, with concerns about slow returns and the rapid advancements of Chinese startup DeepSeek, which has showcased competitive AI technology at a lower cost.
Analysts led by Michael Elias, citing supply chain checks, reported that Microsoft terminated leases for “a couple of hundred megawatts” of capacity with at least two private data-center operators. Additionally, Microsoft has paused the conversion of statements of qualifications, which precede formal leases. Similar moves to reduce capital spending have been observed among other technology companies, including Meta Platforms.
The information, published late Friday, gained traction on social media over the weekend, and several media outlets covered the development on Monday.
Microsoft’s plan to invest over $80 billion in AI and cloud capacity this fiscal year remains on schedule, according to a company spokesperson. “While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions,” the spokesperson stated.
Microsoft’s shares, which underperformed compared to most Big Tech stocks last year, experienced approximately a 1% drop in late morning trading.
Previously, Microsoft announced plans to establish three data center campuses in Licking County, Ohio, and invest $1 billion in the initial phase of the project, which received state tax incentives last year. The campuses, located in New Albany, Heath, and Hebron, were to begin with one building on each site, with potential for further expansion.
Other companies have also announced data center building projects in central Ohio. For instance, Amazon revealed plans last year to invest $10 billion in data centers across the state by the end of 2030.
Any lease cancellations would represent a significant change for Microsoft, which has been investing billions to alleviate supply bottlenecks that limited its capacity to satisfy growing AI demands.
Mark Moelder, an analyst at Bernstein, suggested that the news could signify reduced demand, particularly after disappointing quarterly results from major cloud companies. However, Moelder also noted that it could reflect the capacity Microsoft built up over the past few years.
“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 centers and GPU capacity and negotiated more deals for additional future capacity than they needed,” Moelder said.
(Microsoft CEO Satya Nadella addresses a news conference in 2019. The company is reportedly pulling back on data center investment.)
