On February 24th, an analyst note raised concerns about a potential slowdown in Microsoft's leasing of data center capacity, prompting investor skepticism about the sustainability of the AI-driven stock market surge.
Reported by TD Cowen analysts last Friday, the tech giant's decision to cancel leases for significant data center capacity in the United States implies a possible oversupply as it expands its artificial intelligence infrastructure.
According to the brokerage, Microsoft scrapped leases totaling "a couple of hundred megawatts" with at least two private data center operators. Despite this, Microsoft reiterated its commitment to investing over $80 billion in AI and cloud capacity this fiscal year. A company spokesperson stated, "While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions."
The impact on Microsoft's stock was minimal, down 1% on Monday. However, related companies like Siemens Energy and Schneider Electric saw declines of 7% and 4%, respectively. U.S. utility companies Constellation Energy and Vistra, providers of power for data centers, also experienced losses.
Investor concerns regarding the substantial investments in AI infrastructure by U.S. tech firms have escalated, partly due to advances by the Chinese startup DeepSeek offering AI technology at a lower cost. Analysts noted a shift in Microsoft's approach, including pausing the conversion of precursors to formal leases, following similar strategies by other tech firms like Meta Platforms to reduce capital spending.
Dan Morgan, a senior portfolio manager at Synovus Trust, emphasized Microsoft's long-term strategy despite any lease cancelations, emphasizing the company's ongoing efforts to address supply shortages hindering its ability to meet AI demand.
Furthermore, Bernstein analyst Mark Moelder suggested that the slowdown in data center leases may reflect lower demand, especially after disappointing quarterly results from major cloud companies. Nonetheless, this development could also be viewed as a consequence of Microsoft's effort to secure sufficient capacity to fulfill increasing demand for AI technologies.