TMTPOST -- Microsoft Corporation on Wednesday was once again said to dial back massive resource input into artificial intelligence (AI) infrastructure, raising more concerns about outlook of the AI spending spree.
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Credit：Microsoft
Microsoft has withdrawn data center project totaling more than 2 gigawatts (GWs), or 2 billion watts, of capacity in half a year, TD Cowen analysts led by Michael Elias told investors, citing their channel checks at Nvidia Corporation’s annual GTC conference last week the industry event Data Connect in New York this week.
Given the lease cancellations and leases being terminated in both the U.S. and Europe that TD Cowen’s channel checks indicated, “Microsoft has both (1) walked away from +2GW of capacity in both the U.S. and Europe in the last six months that was in process to be leased, and (2) has both deferred and canceled existing data center leases in both the U.S. and Europe in the last month,” said these analysts in their note on Wednesday.
TD Cowen analysts believed the lease cancellations and deferrals of capacity points to data center oversupply relative to Microsoft’s current demand forecast, though the pullback of new capacity was largely driven by the decision to not support incremental Open AI training workloads. More pervasive lease cancellations or deferrals by Microsoft created an opportunity for both Google and Meta to backfill capacity, the analysts noted.
Microsoft said later Wednesday that it “may strategically pace or adjust our infrastructure in some areas”, but will continue to “grow strongly in all regions.” The company added its plans to spend over $80 Billion on AI infrastructure this fiscal year is still on track and spending beyond the year would begin to slow down.
Earlier this week, Alibaba Group Chairman Joe Tsai warned of AI bubble forming in data center buildout. “I start to see the beginning of some kind of bubble,” Tsai said during the HSBC (HSBC) Global Investment Summit in Hong Kong on Tuesday. “I start to get worried when people are building data centers on spec. There are a number of people coming up, funds coming out, to raise billions or millions of capital.”
Tsai pointed out that some data center projects have started raising funding without customer contracts and that he’s “still astounded by the type of numbers that’s being thrown around in the United States about investing into AI.” “People are talking, literally talking, about $500 billion, several hundred billion dollars,” Tsai said. “I don’t think that’s entirely necessary. I think, in a way, people are investing ahead of the demand that they’re seeing today, but they are projecting much bigger demand.”
TD Cowen last month has already released a report that triggered fears on the sustainability of Microsoft’s mounting AI bills. Microsoft has canceled leases in the U.S> totaling “a couple of hundred” Megawatts (MW) of capacity with at least two private data center operators, Michael Elias and other TD Cowen analysts cited channel checks in a note on February 24. “When coupled with our prior channel checks, it points to a potential oversupply position for MSFT,” Elias said.
The analysts also stated Microsoft has pulled back on the conversion of SOQs, or statement of qualifications, to leases and re-allocated a considerable portion of its international spending to the U.S. SOQ is typically the precursor to signing a data center lease.
“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,” the analysts wrote.
Following the aforementioned TD Cowen report, Microsoft clarified it stuck to spend more than $80 billion in capital expenditure (CapEx) for its fiscal year 2025 ended June, while admitting it “may strategically pace or adjust our infrastructure in some areas.”
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