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Microsoft Adjusts AI Data Center Plans, Cancels Leases

Mellissa · 24 Feb740 Views

Image Credit: Bloomberg

Microsoft Corp. (MSFT) has begun canceling leases for a significant portion of its datacenter capacity in the U.S., a move that could signal concerns about potentially overinvesting in AI computing infrastructure, according to a report from TD Cowen. The company, a major backer of OpenAI, has voided leases amounting to "a couple of hundred megawatts" of capacity, based on checks with supply chain providers.

Microsoft has also stopped converting "statements of qualifications"—agreements that typically lead to formal leases. This strategy mirrors actions taken by rivals like Meta Platforms Inc., which previously reduced capital expenditures.

Microsoft’s pullback in spending and datacenter development raises questions about its outlook for demand. Despite being a leader in AI development, the company, which plans to spend $80 billion on AI data centers this fiscal year, has made this adjustment in its infrastructure plans. CEO Satya Nadella had stated in January that Microsoft needs to sustain investments to meet "exponentially more demand" for AI services.

However, in a statement on Monday, Microsoft reaffirmed its spending target for the fiscal year ending in June and declined to comment specifically on TD Cowen’s report. A company spokesperson emphasized that while Microsoft may "strategically pace or adjust" its infrastructure investments in some areas, it would continue to grow strongly across all regions. The company’s $80 billion infrastructure spending plan for the year remains on track to meet customer demand.

Despite concerns about AI's practical applications, Microsoft, along with other tech giants like Meta and Amazon, has pledged billions for datacenter construction to support AI development. Microsoft executives have downplayed concerns about AI overcapacity, arguing that the vast investments are necessary to fuel the AI services the company is working on.

TD Cowen’s report also highlighted that Microsoft has allowed more than a gigawatt of agreements for larger datacenter sites to expire, and walked away from several deals involving around 100 megawatts each. The analysts also noted that Microsoft appears to be shifting a significant portion of its projected international spending to the U.S., indicating a slowdown in its international datacenter leasing activities.