Microsoft Corp. (MSFT) has started to cancel leases for a significant amount of data center capacity in the United States, a decision that may indicate concerns about overbuilding AI computing resources in the long term, according to a report from TD Cowen.
The brokerage noted on Friday that Microsoft has voided leases amounting to “a couple of hundred megawatts” of capacity, based on insights from supply chain providers. Additionally, the company has ceased converting “statements of qualifications,” which are preliminary agreements that typically lead to formal leases. This approach mirrors a strategy previously adopted by competitors like Meta Platforms Inc. when they decided to reduce capital expenditures, TD Cowen reported. Microsoft’s decision to pull back on spending and data center construction raises questions about its outlook for future demand, despite being a leading player in AI among major tech companies. The firm has announced plans to invest $80 billion this fiscal year in AI data centers. During a January earnings call, CEO Satya Nadella emphasized the necessity of maintaining spending to accommodate “exponentially more demand.”
In a statement released on Monday, Microsoft reaffirmed its spending target for the fiscal year ending in June but did not address TD Cowen’s observations. A company spokesperson 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 fiscal year remain on track as we continue to grow at a record pace to meet customer demand.” Critics have frequently highlighted the lack of practical, real-world applications for AI, even as Microsoft, Meta, and Amazon.com Inc. have committed to substantial investments in the data centers necessary for training, developing, and hosting AI services. Wall Street has intensified its scrutiny of these large expenditures following the launch of a new open-source AI model by Chinese startup DeepSeek, which claims to rival U.S. technology at a significantly lower cost.
TD Cowen analysts Michael Elias, Cooper Belanger, and Gregory Williams noted, “While we have yet to obtain the level of insight through our channel checks that we would prefer regarding this situation, our initial interpretation is that it may be related to Microsoft potentially facing an oversupply.” They emphasized that this was merely their interpretation of the circumstances
