According to industry analysts, the tech giant has walked away from leases totalling several hundred megawatts (MW) with at least two private data centre operators, while also pulling back on planned international investments.
The decision comes amid growing speculation that Microsoft is in an “oversupply position” following its aggressive push into AI and cloud computing.
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Analysts have suggested that Microsoft is leveraging power and facility delays as a justification for terminating certain agreements, a tactic previously employed by Meta when it cancelled multiple U.S. data centre leases after scaling back its $48 billion metaverse investment.
Shifting data centre strategy
In addition to scrapping leases, Microsoft is reportedly slowing down the conversion of Statement of Qualifications (500’s)—preliminary agreements that usually lead to signed leases—raising further uncertainty about its long-term expansion strategy.
The company’s conversion rate for 500’s into actual leases has traditionally been close to 100%, with data centre operators relying on these agreements as signals to begin construction. However, recent developments suggest that Microsoft is now pausing or cancelling these commitments altogether.
Moreover, Microsoft appears to be reallocating a significant portion of its projected international data centre spending back to the US suggesting a potential slowdown in global expansion. This move comes despite the company’s previous efforts to extend its cloud and AI capabilities into international markets.
The shift in strategy has raised concerns about whether the AI infrastructure boom is beginning to cool. Microsoft was the most active data centre lessee in 2023 and the first half of 2024, securing capacity to support the rapid expansion of OpenAI workloads.
However, recent reports suggest that the company has walked away from multiple large-scale deals and allowed over a gigawatt of Letters of Intent (LOIs) on major sites to expire.
Microsoft’s decision to halt construction on a Wisconsin data centre—previously believed to be intended for OpenAI operations—further supports the notion that its AI-driven infrastructure expansion may be recalibrating.
Analysts believe that Microsoft may have overestimated the demand for AI capacity, particularly in regions where data centre resources are less adaptable for general cloud computing.
Contrasting views?
Despite these cutbacks, Microsoft CEO Satya Nadella recently expressed strong confidence in the company’s AI-driven growth trajectory.
Speaking on a podcast this week, Nadella argued that hyperscale cloud providers like Microsoft are set to benefit immensely from AI’s increasing demand for compute power.
“So I think there are two places where I can say with some confidence. One is the hyperscalers that do well, because the fundamental thing is if you sort of go back to even how Sam and others describe it if intelligence is a log of compute, whoever can do lots of compute is a big winner,” Nadella said.
He insisted that AI workloads are “manna from heaven” for cloud providers, stating, “They're more hungry for more compute, not just for training, but we now know, for test time.”
When you think of an AI agent, it turns out the AI agent is going to exponentially increase compute usage because you're not even bound by just one human invoking a program.
“It's one human invoking programs that invoke lots more programs. That's going to create massive, massive demand and scale for compute infrastructure.”
What’s next?
The contrast between Microsoft’s leasing pullback and Nadella’s bullish outlook on AI-driven demand indicates a more complex picture. While Microsoft may be adjusting its immediate infrastructure plans to avoid overcommitment, the company’s long-term bet on AI-driven cloud growth remains intact.
The recent lease cancellations may indicate a strategic recalibration rather than an outright retreat. Microsoft’s move could be a sign of short-term caution rather than a fundamental shift away from AI investment.
If Nadella’s vision holds, the demand for compute power is set to skyrocket, and Microsoft may be preparing to allocate its resources more efficiently rather than scaling back altogether.
Nonetheless, Microsoft reaffirmed its commitment to invest $80 billion to build AI-enabled data centres just last month.
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