Microsoft Cancels Some Data Center Leases, TD Cowen Says. What It Means for the AI Trade.

Microsoft has begun to scale back on data center spending, according to an analysts’ note, but Wall Street is divided on whether this suggests a change to the company’s artificial-intelligence strategy.

TD Cowen analysts first reported in a research note Friday that Microsoft had cancelled leases with “at least two data private center operators” in the U.S., amounting to a few hundred megawatts.

Shares of Microsoft were flat in premarket trading Monday.

The analysts said the tech behemoth also has pulled back on the conversion of statements of qualification to leases and had re-allocated a considerable portion of its international spending to the U.S., pointing to a potential oversupply.

However, Jefferies analysts said in a note Monday that Microsoft executives were “strongly refuting” any change to their data center strategy.

The company is “always tweaking their forecasting of how tight certain regions will be and where investment needs to be prioritized,” the analysts continued.

They noted that the company had guided to capital expenditure growth slowing year over year, “so down from the 50% to 60% YoY pace, but still growing.”

It is “still too early” to say if the changes in data center capacity are a reflection of softer-than-expected AI demand or oversupply, the analysts wrote. In their view, the changes could be driven by power constraints or better-than-expected data-center efficiency.

“Zooming out, reminder that we are still very much in the early innings of this AI buildout, and not everything will be linear or in a straight line,” the analysts continued. “What is increasingly clear is that the market’s faith in the whole AI capex narrative is wobbling.”

https://www.barrons.com/articles/microsoft-stock-ai-data-center-8f7a23da