AI-related stocks in Europe have seen sharp declines over the last few days after investment banking company TD Cowen said Microsoft has canceled some leases for the buildout of its US data center capacity.
On Wall Street, most technology stocks have cratered, with leading AI frontrunners like Nvidia, Intel, Amazon, and Alphabet all losing between 8% and 12% since Feb. 20. Bitcoin company Strategy, formerly MicroStrategy, fell harder, tanking 23% followed by data analytics firm Palantir, which lost 20%. It comes amid worries over economic growth and escalating trade wars.
Microsoft slows down AI data center expansion
Investors in Europe have begun to unwind their positions in AI-related stocks after analysts at TD Cowen on Friday highlighted a potential slowdown in Microsoft’s data center leasing.
“While we have yet to get the level of color via our channel checks that we would like into why this is occurring, our initial reaction is that this is tied to Microsoft potentially being in an oversupply position.”
TD Cowen.
After the news, shares in Germany’s Siemens Energy dropped 3.5% on Tuesday, extending losses that began on Monday, when it fell 4%. The stock has soared over 600% since hitting a low in October 2023, Reuters reports.
French electrical equipment maker Schneider Electric lost 2.5% following a decline of nearly 7% on Monday. In Italy, shares in Prysmian, the world’s largest cable maker, slipped 2% on Tuesday after closing 4.5% down on Monday.
Speaking to Reuters, Dan Ives, tech analyst at Wedbush Securities, said: “The market is heavily skewed negative right now around tech sentiment with any whisper of worries/concern from DeepSeek to Microsoft capex causing a brutal ripple impact across the tech ecosystem.”
Swiss automation company ABB eased 1% on Tuesday following a 4.7% decline a day earlier. On Monday, the company’s management held a call with analysts.
“ABB thinks this is to allow Microsoft to ‘take stock and see where we are’ rather than a major inflection,” Citigroup analysts said in a note after the call, as quoted by Reuters.
UBS said it sees the market response as another “DeepSeek moment” because the selloff gives investors a chance to buy shares at a low price.
Barclays noted that investors may need some time to determine whether the recent development is unique to Microsoft or a sign of a wider shift.
Technology Stocks, Since Thursday:
1. MicroStrategy, $MSTR: -23%
2. Palantir, $PLTR: -20%
3. Tesla, $TSLA: -13%
4. Intel, $INTC: -12%
5. Nvidia, $NVDA: -11%
6. Broadcom, $AVGO: -11%
7. Amazon, $AMZN: -8%
8. Meta, $META: -7%
9. Alphabet, $GOOGL: -5%
10. Microsoft, $MSFT: -4%…— The Kobeissi Letter (@KobeissiLetter) February 25, 2025
Microsoft commits to stay the course
Technology stocks have faced strong headwinds since the emergence of Chinese AI startup DeepSeek. The company unveiled AI models that rival OpenAI’s and Meta’s most advanced models at a fraction of the cost. The release of DeepSeek-V3 and DeepSeek-R1 in January was seen as a major breakthrough, sparking a global selloff in global tech shares.
Some Wall Street companies have now started to reassess the amount of money they are spending on development and key infrastructure such as data centers.
Over the last year, Microsoft invested $19 billion to expand data center capacity for AI training and other workload demands. By cancelling some of its leases, Microsoft may be realizing that it may have been overzealous in its plans to invest in AI, per some media reports.
Additionally, U.S policy measures aimed at curbing China’s technological advancement could impact the growth of AI companies, compounded by the country’s slowing economic growth.
Export restrictions on China may affect AI chip makers such as AMD and Nvidia in light of the huge market share that Chinese buyers represent in their overseas sales.
Microsoft told Bloomberg that it remains committed to spending some $80 billion on AI infrastructure worldwide, but did not comment about whether it was canceling leases.
“While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions,”
a spokesperson said.
In a separate report, TD Cowen suggested Microsoft is terminating the leases because its partner, OpenAI, is moving spending to SoftBank as part of the $500 billion Stargate AI infrastructure project.
“To me this all looks and sounds like business as usual,” Mizuho Securities analyst Jordan Klein wrote in a note, as quoted by Bloomberg.
“A company this large and with $80 billion of annual spend has the right to move in and out of data center leases, many of which were never officially signed.”
Klein.
Companies like Alphabet, Amazon, and Meta have pledged to spend big on artificial intelligence infrastructure. Google-owner Alphabet said over the weekend that it is investing $75 billion in AI.
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