Microsoft cancels several leases with a few AI data centers, suggesting computing oversupply

TD Cowen, the multinational investment bank and financial services consultancy, reported on Microsoft Corp’s cancellation of several leases to AI data center capacity across different companies in the U.S. The investment bank also reported that the canceled data center capacity amounted to hundreds of megawatts, equivalent to at least 2 data centers. 

The report further highlighted that Microsoft was holding the conversion of Statement of Qualifications (SOQ) and precursors to data center leases into formal leases. The conglomerate has also reportedly redirected part of its international investments to U.S. AI development. Microsoft has also reportedly turned away from several other data center capacity deals and land parcels it had leased.

TD Cowen analysts, led by Michael Elias, speculated that the cancellations resulted from Microsoft’s oversupply of computing capacity. The actual reasons behind the alleged lease cancellations still remain unclear. 

The cancellations have also raised speculations about turmoil within the industry despite billions injected by different companies into AI development. Bernstein analyst Mark Moelder commented on the news, suggesting that it could indicate dropping demand. Moelder further mentioned the underwhelming performance of cloud companies in the last few quarters. 

The reports also led to Microsoft stocks underperforming during the weekend and today, dropping by at least 1%. Data centers and related companies, including Vistra and Digital Realty Trust, have also been dropping. 

Microsoft dedicates $80 billion toward AI investment 

*MICROSOFT TO SPEND $80 BILLION ON AI DATA CENTERS THIS YEAR

— Joe Weisenthal (@TheStalwart) January 3, 2025

Microsoft announced at the beginning of the year that it would dedicate $80 billion toward AI investment and infrastructure building in the financial year 2025. The tech conglomerate added that the investment would build data centers that could handle AI activity. Microsoft President and Vice Chair Brad Smith also mentioned that over half of the investment would go toward AI development in the U.S. 

The company’s vice chair highlighted the U.S.’s global dominance in the AI race due to private investment by different companies within the country, including start-ups and more established companies. Smith added that Microsoft had experienced the investments first-hand through its partnership with ChatGPT’s developer, OpenAI. The Microsoft exec mentioned that the partnership brought companies, such as xAI and Anthropic, into the fold. 

OpenAI is among the top tech companies driving AI development in the U.S., gaining investments from other companies, including Nvidia, Microsoft, SoftBank, and more. The company, which is currently valued at approximately $260 billion, has Microsoft as its top investor. SoftBank, which is reportedly discussing a deal with the tech conglomerate, might invest $40 billion in OpenAI. The deal would place SoftBank as the top investor in OpenAI. 

The recent data center capacity lease cancellations have led to speculations that the conglomerate was dropping the $80 billion investment into AI development. Microsoft still reportedly reiterated its plans to go ahead with its investment despite there possibly being several strategic adjustments. 

The tech giant will notably be part of the $500 billion AI development project Stargate, introduced by OpenAI in late January. Stargate is also a project focused on building AI infrastructure in the U.S. to help the U.S. stay ahead of the AI race. 

The conglomerate urges the U.S. government to promote AI

Microsoft urged President Trump’s administration to shift its focus from the AI developments continuing globally to initiate efforts that will ensure its dominance in the AI race in a January blog. The company also highlighted the need to develop an American alternative superior to other countries’ AI tools, including China’s DeepSeek. 

The tech conglomerate also offered suggestions to the government to drive the U.S. toward global AI dominance. Microsoft first suggested that the government find skilled personnel related to AI development. The company added that the technology could inversely provide Americans with a platform to learn new skills, helping them acquire high-paying jobs. 

Microsoft also suggested that the government encourage more U.S.-based AI exports, policies to drive AI development, and development of AI tech and infrastructure. The company reiterated the role technology played to drive economic growth, further suggesting that AI development would help improve the country’s economy.

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