Microsoft has begun canceling leases for significant data center capacity in the United States, according to a report from TD Cowen. This move suggests the tech giant may be re-evaluating its long-term need for artificial intelligence computing power. The report raises questions amid an industry-wide push to build out infrastructure for AI services.
TD Cowen analysts noted that Microsoft, a major player in the AI sector, has voided leases totaling “a couple of hundred megawatts” of capacity. The brokerage, citing channel checks with supply chain providers, also indicated that the company has ceased converting “statements of qualifications,” agreements typically leading to formal leases. This strategy mirrors actions taken by rivals like Meta Platforms, which previously curbed capital spending.
This pullback in spending and data center construction prompts speculation about Microsoft’s confidence in the demand outlook. The company plans to spend $80 billion this fiscal year on AI data centers. Microsoft CEO Satya Nadella mentioned in a late January earnings call that the company needs to sustain expenditures to accommodate “exponentially more demand.”
In an official statement, Microsoft reiterated its spending target for the fiscal year ending June, but declined to comment on the TD Cowen report. A company spokesperson said, “While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions. Our plans to spend over US$80bil on infrastructure this FY remains on track as we continue to grow at a record pace to meet customer demand.”
Critics have raised concerns about the lack of practical, real-world applications for AI, even as tech companies continue to invest heavily in the necessary infrastructure. The release of a new open-source AI model by Chinese firm DeepSeek, which reportedly rivals U.S. technology at a lower cost, has intensified the scrutiny of these expenditures.
“Our initial reaction is that this is tied to Microsoft potentially being in an oversupply position,” wrote TD Cowen analysts Michael Elias, Cooper Belanger, and Gregory Williams, emphasizing that this assessment is based on their interpretation of the available data. Microsoft executives have consistently downplayed concerns about overcapacity, highlighting substantial investments in the chips and data centers fueling AI services.
TD Cowen’s report details several signs of Microsoft’s retreat. The analysts’ channel checks revealed that the company had allowed agreements on large sites exceeding a gigawatt to expire and abandoned multiple projects involving roughly 100 megawatts each. Furthermore, the analysts noted that Microsoft is redirecting a considerable portion of its projected international spending to the U.S., which suggests a significant slowdown.
