Microsoft has quietly canceled data center leases with at least two private data center operators in the U.S., totaling several hundred megawatts, according to an analyst note from TD Cowen.
The tech giant has also walked away from multiple 100-MW deals; let more than a gigawatt worth of letters of intent expire without a finalized contract; and abandoned at least five parcels of land under contract in key markets, the report said.
As justification for the cancellations, Microsoft is pointing to power delays. TD Cowen notes that this is a tactic previously employed by Meta in 2023, when it cancelled several data center leases after cancelling a $4 billion capex program related to the metaverse.
Access to power is certainly a key challenge for the AI sector at present, and for the utilities that serve them. In a new era of energy-first data center development, companies are trying to figure out the right formula for getting their operations reliable power; some are experimenting with colocation or microgrids that act like virtual power plants or even small modular nuclear reactors.
As Brian Janous, the co-founder and chief commercial officer of data center developer Cloverleaf Infrastructure and former vice president of energy at Microsoft, said on an episode of Catalyst in December, big tech companies are experiencing “some hesitation” about how much data center infrastructure they should build. The news of Microsoft’s pull back could suggest that the company simply overestimated their needs.
For more on the complexity of powering data centers, listen to the latest episode of Open Circuit.
But it could also indicate something more complex. TD Cowen’s analysis is that Microsoft’s pullback appears instead to be a strategic recalibration, tied specifically to OpenAI workloads, now being shifted from Azure over to Oracle.
“The magnitude of both potential data center capacity [Microsoft] walked away from and the decision to pull back on land acquisition…in our view indicates the loss of a major demand signal that Microsoft was originally responding to,” TD Cowen wrote.
The note also points to Microsoft’s decision to pause construction on a Wisconsin data center, reportedly being built to support OpenAI, which indicates the tech giant may be struggling with infrastructure purpose-built for AI that can’t easily transition to general cloud computing when forecasts shift.
