Microsoft, despite its pledge to spend $80 billion on AI data centers in fiscal year 2025, has reportedly canceled some of its data center leases. A report from financial services company TD Cowen, authored by Michael Elias, Cooper Belanger, and Gregory Williams, indicates that Microsoft may be reevaluating some of its previously agreed-upon capacity agreements.
Data Center Lease Cancellations
The report highlights the cancellation of leasing agreements for “a couple hundred MWs” worth of data center capacity. While the report doesn’t name specific companies, it confirms that at least two separate data center operators were involved. This is notable given Microsoft’s prominent position in the AI industry and the potential impact these cancellations could have on private data center operators.
The report’s authors suggest that Microsoft might have overcommitted or, alternatively, is citing technical delays as a justification for the cancellations. Further, Microsoft seems to be hesitant to convert some of its current Statements of Qualification (SOQs) into full leases, although the report doesn’t clarify whether these conversions are delayed or fully canceled. SOQs typically precede full leases, creating uncertainty for companies anticipating future agreements.
Reallocation of Resources
Microsoft appears to be reallocating resources from international data center investments toward the U.S. market. According to TD Cowen, this reallocation could indicate a slowdown in international leasing contracts. The report notes that Microsoft was the most active lessee in AI data center capacity throughout 2023 and into the first half of 2024. Much of this activity was targeted towards supporting Azure’s OpenAI workloads and different AI models, including GPT-4o and DALL-E.
This slowdown could potentially signal a strategic adjustment by Microsoft to better align its data center strategy with current demand. It’s also possible that Microsoft is shifting focus toward more efficient technology or different deployment strategies.
Interpretation and Response
The authors of the TD Cowen report emphasize that their conclusions are interpretations of Microsoft’s recent actions and are subject to change as new information becomes available.
In response, a Microsoft spokesperson, as reported by Bloomberg, stated: “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 $80 billion on infrastructure this FY remains on track as we continue to grow at a record pace to meet customer demand.”
Microsoft CEO Satya Nadella has also expressed ongoing enthusiasm for AI data center spending and growth through 2028. The situation remains dynamic, and further developments will be critical in understanding Microsoft’s long-term plans for its AI infrastructure.
