Microsoft has scrapped leases for sizeable data centre capacity in the US, suggesting a potential oversupply at the tech giant as it builds out artificial intelligence infrastructure to meet a possible surge in demand, TD Cowen said.
Scepticism has been growing among investors over the billions of dollars US tech firms have been channelling into AI infrastructure due to slow payoffs and breakthroughs at Chinese startup DeepSeek, which has showcased AI tech on par with or even better than its Western rivals at a fraction of the cost.
Microsoft has cancelled leases totalling “a couple of hundred megawatts” of capacity with at least two private data centre operators, analysts led by Michael Elias said, citing supply chain checks.
Microsoft has also paused converting statement of qualifications, or precursors to formal leases, the analysts added, saying other tech firms including Meta Platforms had previously made similar moves to lower capital spending.
The note was published late on Friday but it picked up traction on social media platforms over the weekend, with several media outlets covering the development.
Microsoft’s plan to invest over US$80 billion ($126 billion) in AI and cloud capacity this fiscal year remains on track, 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,” the spokesperson said.
The company’s shares, which underperformed most Big Tech stocks last year, fell about 1% in late morning trading.
Any lease cancellations would mark a sharp shift for a company that has been spending billions of dollars on data centres to overcome supply bottlenecks that have limited its ability to meet AI demand.
The news could possibly indicate lower demand, Bernstein analyst Mark Moelder said, especially after lacklustre quarterly results from major cloud companies, but it was also reflective of the capacity build-up at Microsoft in the past 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 centres and GPU capacity and negotiated more deals for additional future capacity than they needed,” Moelder said.