Microsoft Slows Data Centre Leases, Raising Investor Concerns
Microsoft has reportedly slowed its data centre leasing, raising concerns among investors about potential oversupply in artificial intelligence (AI) infrastructure.
TD Cowen analysts said the tech giant had cancelled leases for "a couple of hundred megawatts" of capacity with at least two private data centre operators in the United States. The brokerage, citing supply chain checks, suggested this could indicate an adjustment in Microsoft's AI expansion strategy.
Despite the lease cancellations, Microsoft’s plan to invest over USD 80 billion in AI and cloud capacity this fiscal year remains unchanged. A company spokesperson stated that while infrastructure adjustments may occur, growth will continue across all regions.
Microsoft shares saw little impact, declining 1% on Monday. However, related companies experienced losses. Siemens Energy and Schneider Electric shares fell 7% and 4%, respectively. U.S. utility firms Constellation Energy and Vistra, which supply power to data centres, dropped 5.9% and 5.1%, respectively. The broader Nasdaq market also saw a decline.
Investor skepticism over AI infrastructure spending has grown, particularly after Chinese startup DeepSeek demonstrated AI technology at a lower cost than Western competitors. TD Cowen analysts noted that Microsoft had also paused converting statements of qualifications, which are precursors to formal leases. Other tech firms, including Meta Platforms, have previously taken similar steps to reduce capital expenditures.
Dan Morgan, senior portfolio manager at Synovus Trust, which holds Microsoft shares, said the move does not indicate a major shift in strategy. He emphasised that Microsoft remains committed to expanding its data centres.
Bernstein analyst Mark Moelder suggested the lease cancellations could signal lower demand, especially following weak quarterly results from major cloud companies. However, he also noted that Microsoft had aggressively secured capacity in recent years to address supply constraints.
"Microsoft needed to meet demand and had a great deal of difficulty finding capacity," Moelder said. "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."
Microsoft has cancelled data centre leases, raising concerns about AI infrastructure oversupply.
The company still plans to invest over USD 80 billion in AI and cloud capacity this fiscal year.
Microsoft shares remained stable, but related companies saw declines.
Source: REUTERS