Microsoft is dialling back its AI infrastructure plans
Matt V
February 25, 2025
MICROSOFT
Microsoft has cancelled several large data centre leases in the U.S., signalling a possible oversupply as it builds AI infrastructure.
Analysts from TD Cowen suggest the company may have overestimated its short-term needs while preparing for future demand.
Investors are becoming wary of the billions U.S. tech companies are spending on AI infrastructure.
This caution comes as returns have been slower than expected, and competition from Chinese startup DeepSeek is rising, offering advanced AI at a lower cost.
According to analysts led by Michael Elias, Microsoft cancelled leases covering several hundred megawatts with at least two private data centre providers.
The company has also paused preliminary agreements that typically lead to formal leases.
Too much, too soon?
Other tech firms like Meta have made similar moves to cut back on spending.
Despite the reports, Microsoft has denied any changes to its data centre plans.
The company’s shares rose by 0.5% in premarket U.S. trading, though concerns around AI spending remain.
Why the shift?
Microsoft had planned to spend $80 billion this fiscal year, mostly on AI infrastructure.
Cancelling leases could mean Microsoft secured more capacity than needed during earlier expansions.
Slower growth from major cloud companies hints that demand for AI services might not be as high as expected.
It’s still unclear what this means in the long term, but this move could reflect a more cautious approach as tech companies navigate the evolving AI landscape.
Imagine pre-paying for a five-year lease and then realising you don’t like the neighbourhood.