Is Microsoft hesitating on AI? Days after CEO said it would be upping capacity, analyst claims tech giant has actually cancelled data center leases

• Analysts says Microsoft has cancelled leases with at least two data center operators
• It could be reassessing AI infrastructure investments amid potential oversupply
• Despite adjustments, Microsoft maintains its $80 billion AI commitment

Microsoft may not be quite as all-in on investing in AI infrastructure as recent reports have suggested. MarketWatch reported on a research note written by TD Cowen analysts which claims Microsoft has cancelled leases in the US with at least two private data center operators.

The leases totaled “a couple hundred megawatts” and Microsoft is also is not converting “so-called statements of qualifications into leases”. The same analysts also report that Microsoft has moved a portion of planned international spending to the US.

This is despite a recent interview with Microsoft Chairman and Chief Executive Satya Nadella, who said AI supply and demand will have to meet and that tech firms will need to exponentially invest to make this happen.

Raising broader questions

“When coupled with our prior channel checks, it points to a potential oversupply position for Microsoft,” said lead analyst Michael Elias. The group believes the shift is linked to OpenAI which Microsoft has close ties to.

“Consider this: Microsoft was the most active lessee of capacity in 2023 and 1H24, at which time it was procuring capacity relative to a capacity forecast that contemplated incremental OpenAI workloads. However, as we believe is indicated by its decision to pause construction on a data center in Wisconsin - which our prior channel checks indicated was to support OpenAI - there is capacity that it has likely procured, particularly in areas where capacity is not fungible to cloud, where the company may have excess data center capacity relative to its new forecast,” the analysts said.

Writing about the news, Bloomberg said, "A potential lease pullback by Microsoft raises broader questions about whether the company - one of the frontrunners among Big Tech in AI - is growing cautious about the outlook for overall demand. The company has said it expects to spend $80 billion this fiscal year on AI data centers, and on a late January earnings call, Chief Executive Officer Satya Nadella said Microsoft has to sustain spending to meet “exponentially more demand.”

“While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions," a Microsoft spokesperson told Bloomberg. "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.”

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