Microsoft, whose shares were down more than 1%, stated they might deliberately modify their infrastructure in certain locations, but it will continue to grow strongly.
Microsoft has pulled back from new data center projects in the United States (US) and Europe in the last six months, which would have amounted to about 2 gigawatts of electricity, according to TD Cowen analysts. The analysts blamed the pullback on the oversupply of computer clusters that drive artificial intelligence (AI).
The analysts led by Michael Elias wrote in a note that the tech giant’s withdrawal from new capacity leasing was mainly due to its decision not to support additional training workloads from ChatGPT maker OpenAI, which it has backed with for about US$13 billion.
The analysts first alarmed the investors in February, highlighting deals Microsoft had abandoned in the US.
Earlier this year, Microsoft announced that they had changed their multi-year contract to allow OpenAI to use cloud computing services from other companies, as long as Microsoft did not want the company itself.
Investors were concerned about the large-scale artificial intelligence spending by the US tech companies due to slower returns and the rise of Chinese startup DeepSeek, which developed AI technology at a fraction of the cost of its Western competitors.
After the DeepSeek announcement, Meta and Microsoft executives justified their significant artificial intelligence spending, claiming it is crucial to compete in the emerging market.
Alphabet spent $75 billion on AI rollout, 29% more than Wall Street expected, and Meta has committed to investing up to $65 billion.
In the latest research note released on Wednesday, the TD Cowen analysts stated that lease cancellations and deferrals were part of Microsoft’s layoffs during the previous six months.
Alphabet’s Google has stepped in to buy some leases that Microsoft abandoned in Europe, while Meta Platforms has intervened to take some of the freed capacity in Europe.
Google and Meta representatives did not immediately respond to the research note.
Microsoft, whose shares were down more than 1%, stated they might deliberately pace or modify their infrastructure in certain locations, but it will continue to grow strongly.
Related companies also suffered. Shares of German company Siemens Energy and French company Schneider Electric fell 7% and 4%, respectively.
Data center power providers US utility companies Constellation Energy and Vistra lost 5.9% and 5.1%, respectively. Many tech companies were down as part of the larger selloff in the Nasdaq, a stock market index.
The analysts at TD Cowen reported that Microsoft had abandoned leases with at least two private data center operations of a hundred megawatts capacity.
Microsoft representatives stated they are ready to meet their current and growing customer demands since they have added more capacity in recent years than in the company’s history.
Microsoft announced that it is still on track to invest over US$80 billion in the construction of AI data centers in its financial year, which ends in June. Microsoft executives have claimed that the pace of growth should be slow in the next financial year.
After a mad rush to support OpenAI and other AI projects, the company anticipates moving from construction to equipping data centers with servers and other equipment.
Joe Tsai, the chairman of Alibaba Group Holding, warned about the potential spike in data center construction, stating that new projects may exceed demand for AI services.
Microsoft shares dropped 1.3% to US$389.97 in New York. In the middle of the general market decline, the shares of Nvidia, the leading chip provider that trains large language models that drive AI products, fell 5.7% to US$113.76. Meta dropped 2.4% to US$610.98, while Alphabet dipped 3.3% to US$167.14.