TD Cowen, the multinational investment bank and financial services consultancy, reported on Microsoft Corp’s cancellation of several leases for AI data center capacity across various companies in the U.S. The investment bank also noted 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 off on converting Statements 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. Additionally, Microsoft has 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 were a result of Microsoft’s oversupply of computing capacity. The actual reasons behind the alleged lease cancellations remain unclear.
The cancellations have raised speculations about turmoil within the industry, despite billions being injected by various companies into AI development. Bernstein analyst Mark Moelder commented on the news, suggesting that it could indicate a drop in demand. Moelder further mentioned the underwhelming performance of cloud companies in the last few quarters.
As a result of the reports, Microsoft stocks underperformed over the weekend and today, dropping by at least 1%. Data centers and related companies, including Vistra and Digital Realty Trust, have also seen declines.
Microsoft dedicates $80 billion toward AI investment
At the beginning of the year, Microsoft announced it would dedicate $80 billion toward AI investment and infrastructure building in the financial year 2025. The tech conglomerate stated that this investment would build data centers capable of handling AI activities. Microsoft President and Vice Chair Brad Smith also mentioned that over half of the investment would go toward AI development in the U.S.
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The company’s vice chair emphasized the U.S.’s global dominance in the AI race due to private investment from various companies within the country, including startups and more established firms. Smith noted that Microsoft had experienced these investments firsthand through its partnership with ChatGPT’s developer, OpenAI. He mentioned that the partnership had brought companies such as xAI and Anthropic into the fold.
OpenAI is among the top tech companies driving AI development in the U.S., receiving investments from other firms, including Nvidia, Microsoft, SoftBank, and more. The company, currently valued at approximately $260 billion, counts Microsoft as its largest investor. SoftBank, which is reportedly discussing a deal with the tech conglomerate, might invest $40 billion in OpenAI, potentially making SoftBank the top investor in the company.
The recent cancellations of data center capacity leases have led to speculations that the conglomerate was pulling back on the $80 billion investment in AI development. Nevertheless, Microsoft has reportedly reiterated its plans to proceed with the investment, albeit with potential strategic adjustments.
The tech giant will notably participate in the $500 billion AI development project Stargate, introduced by OpenAI in late January. Stargate is also focused on building AI infrastructure in the U.S. to help the nation maintain its lead in the AI race.
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The conglomerate urges the U.S. government to promote AI
Microsoft urged the Trump administration to shift its focus from ongoing global AI developments to initiate efforts that will ensure its dominance in the AI race in a January blog post. The company also highlighted the need to develop an American alternative superior to other countries’ AI tools, including China’s DeepSeek.
The tech conglomerate offered several suggestions to the government to drive the U.S. toward global AI dominance. Microsoft first proposed that the government find skilled personnel for AI development. The company added that technology could inversely provide Americans with a platform to learn new skills, helping them secure high-paying jobs.
Furthermore, Microsoft suggested that the government encourage more U.S.-based AI exports, implement policies to drive AI development, and develop AI technology and infrastructure. The company reiterated the role of technology in driving economic growth, further suggesting that AI development would help improve the nation’s economy.