Microsoft has withdrawn from data center leasing agreements worth 200MW, according to a report by TD Cowen. Analysts Michael Elias, Cooper Belanger, and Gregory Williams state that channel checks revealed Microsoft canceled leases totaling “a couple of hundred MWs” with at least two private data center operators in the US. The company has also pulled back on converting negotiated and signed Statements of Qualifications (SOQs) into signed leases and has reallocated a significant portion of its international spending to the US.
TD Cowen suggests that Microsoft is using facility and power delays as justification for these actions, drawing comparisons to Meta’s similar tactics in 2022 following its cancellation of multiple data center leases related to the metaverse. The report notes that it is unclear if the delay in converting SOQs to leases is temporary or represents an outright termination. The brokerage also found that Microsoft’s reallocation of international spending to the US indicates a potential slowdown in international leasing.
The report concluded that in 2023 and the first half of 2024, Microsoft was the most active lessee of data center capacity, driven by a forecast that included additional OpenAI workloads.
Microsoft adjusts data center strategy
However, Microsoft has paused several constructions, signifying likely excess capacity.
In January, CFO Amy Hood stated that the company was operating from a “pretty capacity-constrained place,” citing shortages of power and space. Last week, CEO Satya Nadella mentioned an impending “overbuild” of AI infrastructure, with plans to lease significant capacity in 2027 and 2028. Microsoft declined to comment specifically on TD Cowen’s report but a spokesperson indicated that while the company may strategically pace or adjust its infrastructure, it intends to continue strong growth in all regions.
Microsoft’s plan to spend over $80 billion on infrastructure this fiscal year remains on track to meet growing customer demand. Despite losing its position as OpenAI’s primary partner following the $500bn Stargate data center initiative by the AI company, Microsoft retains the “right of first refusal” on new capacity and has approved OpenAI’s ability to build additional capacity primarily for research and model training. CEO Nadella reaffirmed the strong partnership with OpenAI, noting that their success is interconnected with Microsoft’s Azure platform.
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April Isaacs is a news contributor for DevX.com She is long-term, self-proclaimed nerd. She loves all things tech and computers and still has her first Dreamcast system. It is lovingly named Joni, after Joni Mitchell.
