Microsoft has axed some of its leases on data centers as DeepSeek’s rapid rise casts doubt over massive US spending on artificial intelligence, according to a report.
The Washington-based software giant has canceled leases in the US totaling “a couple of hundred megawatts,” or about two huge data centers, according to a report from TD Cowen analysts released Friday.
“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 TD Cowen analysts wrote in a note.
Microsoft’s abandonment of its heavy data center push is the latest sign of shakiness in the tech industry after China’s DeepSeek claimed to create a generative chatbot with a fraction of the time and money it took US rivals.
Now, uncertain investors are anxiously awaiting chipmaker Nvidia’s earnings on Wednesday. The earnings report is expected to show revenue climbed at a much slower pace than a year ago.
Nvidia suffered the largest one-day drop in market history and tech stocks lost more than $1 trillion after DeepSeek’s launch last month.
Microsoft did not immediately respond to a request for comment.
The TD Cowen analysts, Michael Elias, Cooper Belanger and Gregory Williams, said their “channel checks” of the supply chain also found Microsoft has slowed down on converting negotiated statements of qualifications, which usually lead to formal leases.
It’s unclear exactly why Microsoft, OpenAI’s largest backer, is pulling back on US data centers.
In a second report published on Monday, TD Cowen analysts suggested Microsoft’s retreat could be due to OpenAI shifting to Oracle after the two companies agreed to partner on a $500 billion AI project known as Stargate.
TD Cowen separately said its checks suggested Microsoft has reallocated a significant portion of its global spending to the US.
Microsoft has been a frontrunner in the AI race, investing millions in the futuristic technology.
The company has said it plans to spend $80 billion this year on AI data centers.
TD Cowen said their channel checks suggested Microsoft was slowly retreating from these massive spending plans.
The company, led by chief executive Satya Nadella, has let more than a gigawatt of agreements on larger data center sites expire, and has walked away from deals involving about 100 megawatts each, according to the analysts’ report.
In some situations, Microsoft has used facility and power delays as its justifications for ending leases – the same tactic used by Meta when the rival was trying to cut capital spending, TD Cowen wrote.
OpenAI has recently become less dependent on Microsoft, now able to use cloud-computing services from competing providers.
Microsoft had previously been OpenAI’s sole cloud provider.
The company still has a right of first refusal when OpenAI is looking for computing technology to power its AI models.
[Notigroup Newsroom in collaboration with other media outlets, with information from the following sources]
