Microsoft Canceling Data Center Leases, Walking Away From Deals, Analysts Say

Microsoft has canceled leases or paused construction on several data centers in the U.S. and Europe as it taps the brakes on parts of its digital infrastructure expansion.

Over the last six months, Microsoft has “walked away” from pending data center leases with third-party developers in the U.S. and Europe totaling 2 gigawatts of capacity, TD Cowen analysts wrote in a note on Wednesday. The note said Microsoft has also “deferred and canceled existing data center leases” in the two regions in just the past month.

“In our view, the pullback on new capacity leasing by Microsoft was largely driven by the decision to not support incremental Open AI training workloads,” analysts wrote in the report, which was shared with Bisnow. “However, we continue to believe the lease cancellations and deferrals of capacity point to data center oversupply relative to its current demand forecast.”

The pullback is significantly larger than previously thought — TD Cowen analysts wrote last month that Microsoft had canceled leases totaling 200 megawatts in U.S. markets and let letters of intent expire and withdrew from contracts for at least five land parcels.

Despite the slowdown, Microsoft still intends to spend close to $80B on AI data centers, a Microsoft spokesperson told Bloomberg.

“While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions,” the spokesperson told Bisnow. “This allows us to invest and allocate resources to growth areas for our future.”

The latest pullback, which Bloomberg first reported, reflects Microsoft's previous decision to pass on some OpenAI training support, which Microsoft has backed with $13B, giving other companies a chance to step in.

While Microsoft is growing wary of building out more data centers than it can use, its rivals are eagerly stepping into their place. The report doesn't specify exactly which leases Microsoft is canceling, but it notes that Mark Zuckerberg’s Meta is backfilling the space in the U.S., and Google is taking the international data centers.

Since the report, stocks tied to artificial intelligence infrastructure have declined, with AI chipmakers Nvidia and Broadcom dropping 5%, while AI server makers Dell Technologies and Super Micro fell 3% and 9%, respectively, Yahoo Finance reported. Microsoft's stock dipped on Wednesday after the note was published, but it recovered some of that value in Thursday trading.

UPDATE, MARCH 27, 7:15 P.M. ET: This story has been updated to include a statement from Microsoft.

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Related Topics: Google , Meta , Microsoft , TD Cowen
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