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Microsoft has reportedly canceled several data center lease agreements in the U.S., totaling hundreds of megawatts (MW). According to an industry report by TD Cowen, the company is also slowing down the process of converting Statements of Qualification (SOQs) into final lease agreements. This move suggests concerns over an oversupply of data centers and a shift in Microsoft’s expansion strategy.
The first cracks in the AI thesis are starting to emerge.$MSFT pic.twitter.com/RsXnDYzzHs
— THE SHORT BEAR (@TheShortBear) February 23, 2025
Why Did Microsoft Cancel Data Center Leases?
Microsoft has terminated multiple leases with at least two private data center operators, with some citing facility power delays. In addition, the company is pulling back from converting SOQs, which are pre-approvals for data center leases, into final agreements. This slowdown indicates Microsoft may be reevaluating its expansion plans.
A Shift in Strategy
The company is reportedly redirecting a significant portion of its international investments back to the U.S., hinting at a slowdown in global data center growth. While Microsoft has not officially commented on these cancellations, analysts speculate that oversupply and shifting AI infrastructure needs may be key factors.
Impact on AI and Cloud Expansion
Microsoft previously planned an aggressive expansion to support AI projects like OpenAI. However, recent reports suggest the company may have built more AI data center capacity than needed. This recalibration mirrors a similar decision by Meta, which scaled back its $4 billion metaverse-related capital expenditure in 2023.
$MSFT reportedly cancelling data center leases.
— Brad Freeman (@StockMarketNerd) February 23, 2025
On the last call, the company had already spoken about shifting CapEx from long-lived assets like data centers to short-lived assets like servers.
They've been "short power & space" over the last few years & have aggressively…
Microsoft’s decision highlights a strategic shift, possibly balancing short-term capacity issues with long-term investment priorities. It remains to be seen how this adjustment will affect its AI and cloud computing expansion plans in the future.
