Microsoft Pauses Data Center Deals Amid Potential AI Infrastructure Oversupply
Bengaluru, India – Microsoft has reportedly scrapped leases for significant data center capacity in the United States, according to a report from TD Cowen, raising questions about a potential oversupply as the tech giant invests heavily in artificial intelligence infrastructure.
Analysts led by Michael Elias at TD Cowen, citing supply chain checks, said that Microsoft has canceled leases for “a couple of hundred megawatts” of capacity with at least two private data center operators. The company has also reportedly paused the conversion of statements of qualifications, which are preliminary steps toward formal leases.
Investor sentiment toward the massive investments in AI infrastructure by U.S. tech firms has become somewhat cautious due to uncertain returns, in addition to breakthroughs by Chinese startup DeepSeek, which has demonstrated AI technology comparable to or even exceeding its Western rivals at a significantly lower cost.
The report, released late on Friday, quickly gained traction on social media, with several media outlets covering the development on Monday.
Microsoft’s plan to spend over $80 billion on AI and cloud capabilities for this fiscal year remains on track, according to a company spokesperson. The spokesperson stated, “While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions.”
Microsoft’s shares, which underperformed many major tech stocks last year, experienced a roughly 1% dip in late morning trading.
In the past, Microsoft announced plans to develop three data center campuses in Licking County, investing $1 billion in the initial phase of this project. The campuses were slated for construction in New Albany, Heath, and Hebron, starting with one building on each campus before expanding. Several other companies also have data center building projects in central Ohio, including Amazon, which announced investing $10 billion in data centers across the state by the end of 2030.
Mark Moelder of Bernstein noted that the cancellations could point to reduced demand, especially after underwhelming quarterly results from major cloud services providers. However, he also indicated that the move reflects the capacity build-up by Microsoft in previous 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 stated.
Reuters contributed to this report.
