Microsoft Scales Back U.S. Data Center Leases Amid AI Infrastructure Oversupply Concerns

Microsoft Corp. has canceled several data center leases in the U.S., leading to questions about the company’s long-term AI infrastructure strategy.

TD Cowen’s report, cited by Bloomberg, reveals that Microsoft has canceled leases for “a couple of hundred megawatts” of capacity—about two data centers.

The report, based on supply chain inquiries, indicates that Microsoft is reevaluating its data center requirements amid concerns over potential oversupply.

The move marks a shift for Microsoft, a company that had earmarked $80 billion for AI infrastructure spending in the fiscal year ending in June. Despite this pullback, the company maintains its commitment to significant spending, says Bloomberg.

Fortune reports that a Microsoft spokesperson reiterated in a statement that its plans to invest over $80 billion in infrastructure remain on track, adding that the company will continue to grow to meet customer demand.

However, the cancellation of leases raises doubts about whether Microsoft is scaling back its spending in response to potential overcapacity in the data center market, as noted by Fortune.

Skepticism surrounding the AI infrastructure market has grown in recent months, particularly after Chinese startup DeepSeek unveiled an AI model it claims rivals U.S. technology at a fraction of the cost.

This has intensified questions about the massive investments that companies like Microsoft, Meta, and Amazon have been making to build the data centers needed to support AI services.

While Microsoft has continued to invest heavily in AI infrastructure, the company’s recent actions suggest a potential slowdown in its data center construction.

Bloomberg reports that TD Cowen analysts noted that Microsoft has also halted the conversion of “statements of qualifications”—agreements that typically lead to formal leases.

They pointed out that Meta Platforms had used similar tactics in the past to reduce capital spending. Analysts further suggested that Microsoft might be reallocating its international spending toward the U.S., reflecting a slowdown in overseas data center leasing.

Fortune argues that the pullback could also be tied to changes in Microsoft’s relationship with OpenAI, its major AI partner. Reports indicate that OpenAI may be shifting some of its workloads to Oracle Corp., a move that could reduce Microsoft’s need for additional data center space.

In January, Microsoft announced an adjustment to its multiyear deal with OpenAI, allowing the AI startup to use cloud services from other providers, though Microsoft still retains the right of first refusal for computing capacity, says Bloomberg.

While analysts have suggested that Microsoft may be in an oversupply position, the company has downplayed concerns about overcapacity.

The large-scale investment in AI infrastructure, particularly in chips and data centers, remains critical to supporting Microsoft’s AI initiatives, according to the company, as noted by Reuters.

As Microsoft recalibrates its data center strategy, it remains to be seen how this will impact the broader AI infrastructure market and whether demand for these services will continue to grow as anticipated.