On Monday, market attention was drawn to an analyst note that flagged a possible slowdown in Microsoft’s data center capacity leasing, adding to investor skepticism about the AI-led market’s long-term health. The note, published Friday by TD Cowen analysts, suggested that the tech giant had scrapped leases for significant data center capacity, potentially indicating oversupply as it builds out artificial intelligence infrastructure.
According to the brokerage, which cited its supply chain checks, Microsoft has canceled leases for “a couple of hundred megawatts” of capacity with at least two private data-center operators. The analysts, led by Michael Elias, provided this information.
Despite these concerns, a Microsoft spokesperson stated that the company’s plan to invest over $80 billion in AI and cloud capacity this fiscal year remains on track. “While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions,” the spokesperson said.
While Microsoft shares saw a modest 1% decline on Monday, related companies experienced more significant impacts. Shares of Siemens Energy and Schneider Electric fell 7% and 4%, respectively. U.S. utility companies Constellation Energy and Vistra, which supply power to data centers, lost 5.9% and 5.1%, respectively. The broader Nasdaq selloff contributed to the decrease in tech bellwethers.
Investor skepticism has grown over the billions channeled by US tech firms into AI infrastructure, partly due to slow returns and breakthroughs from Chinese startup DeepSeek, which showcased AI technology at a significantly lower cost than its Western rivals. TD Cowen analysts also pointed out that Microsoft had paused converting statements of qualifications, or precursors to formal leases, adding that similar moves have been made by other tech firms, including Meta Platforms, to reduce capital spending.
Dan Morgan, a senior portfolio manager at Synovus Trust, which holds shares in Microsoft, said he is not overly concerned about Microsoft’s changes. “I don’t construe it as any change up in the big macro picture. Their desire is to build out these data centers.”
Any lease cancellations would represent a notable shift for Microsoft. The company has been investing billions of dollars in data centers to alleviate supply bottlenecks that have hindered its ability to meet AI demand.
Bernstein analyst Mark Moelder speculated the news could suggest lower demand, especially following lackluster quarterly results from major cloud companies. Moelder also noted that Microsoft had aggressively built up capacity in recent 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,” said Moelder.
