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Microsoft (MSFT) shares fell slightly on Monday following an analyst report that the company canceled some U.S. data center leases, potentially signaling an oversupply of AI infrastructure.
On Friday, analysts at TD Cowen (TD) said in a note that the tech giant had canceled leases worth “a couple of hundred megawatts,” or approximately two data centers worth of capacity. In some cases, Microsoft said “facility/power delays” were a reason for termination, analysts said in the note, adding that Meta (META) had previously used a similar justification to cancel data center leases.
TD Cowen also noted that Microsoft “has pulled back on” converting statement of qualification, agreements that typically turn into traditional leases. The analysts expressed uncertainty about whether Microsoft’s actions represent a temporary delay or a complete termination of the agreements.
The company is potentially “in an oversupply position,” with the note adding that Microsoft has turned down other data center and land acquisition deals. The TD Cowen analysts wrote that this indicated “the loss of a major demand signal that Microsoft was originally responding to and that we believed the shift in their appetite for capacity is tied to OpenAI.”
The company’s stock was down by around 1.2% at noon and has fallen by more than 4% so far this year.
“Thanks to the significant investments we have made up to this point, we are well positioned to meet our current and increasing customer demand,” a Microsoft spokesperson said in a statement shared with Quartz. “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.”
The spokesperson added that Microsoft’s plan to spend more than $80 billion on AI infrastructure thisfiscal year is still on track.
Last week, The Information reported that OpenAI has told investors that it expects the Stargate Project — which it has partnered with SoftBank and Oracle (ORCL) on — to provide three-quarters of the computing power it needs for its artificial intelligence models by the end of the decade — a shift away from Microsoft.
Bank of America (BAC) analysts said in a note on Monday that Microsoft is “strongly refuting” changes to its data center strategy.
“They [Microsoft] make investments based on a 10-year view on demand for cloud and AI demand,” the Bank of America analysts said. “They tweak their forecasts up and down on this overtime on a regional basis depending on which regions need to be prioritized.”