Microsoft has finally offered a rebuttal to a report by TD Cowen, an American investment bank, that claims that the global technology giant has cancelled data center leases. Microsoft has clarified that its investment plans remained on track even if it may “strategically pace or adjust” its infrastructure in some areas.
Readers would recall that Microsoft had announced that it would invest US$ 80 billion on infrastructure in this financial year, and showcased ambitious plans surrounding AI. Microsoft is in a strategic partnership with OpenAI undertaking AI research and development.
But last Friday, in an industry update TD Cowen said that their channel checks indicated that Microsoft had cancelled leases in the US to the tune of “a couple of hundred MWs” with at least two private data center operators. It further claimed that Microsoft had pulled back on converting negotiated Statement of Qualifications (SoQ) to leases, and had also re-allocated a considerable portion of its international spend to the US.
Here’s a copy of TD Cowen’s Industry Update shared last week:
This news was picked up by international investors and technology industry watchers, and speculation and rumours about Microsoft’s reasons for allegedly cancelling its leases spread like wildfire over the weekend.
In a LinkedIn post, technical recruitment expert and data center industry watcher Andy Davis asked the questions that were on everyone’s mind, “Reduced demand? Seeking quicker capacity? Pleasing the investors? Stargate taking over? A US focus for AI? Or something else?”
On Monday, Microsoft’s stock reportedly dropped by one percent.
Now, Microsoft has offered its rebuttal to TD Cowen’s claims. In an email to CNBC, a Microsoft spokesperson clarified, “Our plans to spend over $80B on infrastructure this FY remains on track as we continue to grow at a record pace to meet customer demand.” The spokesperson further said, “Thanks to the significant investments we have made up to this point, we are well positioned to meet our current and increasing customer demand.”
On the subject of re-evaluating investment decisions, Microsoft said, “Last year alone, we added more capacity than any prior year in history. While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions. This allows us to invest and allocate resources to growth areas for our future.”
Meanwhile, analysts and industry watchers are keeping an eagle eye on developments.
“From Menlo Research’s perspective, this is more or less a healthy correction from last year’s over-exuberance,” says Daniel O, Founder, Menlo Research. “If you zoom out, Microsoft and others are still expanding their footprint very drastically. OpenAI shifting their payloads away from Microsoft also matters, and I wouldn’t be surprised if Microsoft’s leases are taken over via displacement effect.”
He further says, “Long term, we are still seeing rapid advances in inference-time scaling, and long context windows necessitate data center inference. We see global compute only growing as AI capabilities grow, with shrewd and decisive players taking advantage of over-exuberance and oversupply.”