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Microsoft (NASDAQ:MSFT) is making moves that have Wall Street on edge. The tech giant has reportedly pulled back on data center expansion, canceling leases with private operators totaling a few hundred megawatts in the U.S. Analysts are splitsome see this as a routine adjustment, others as a red flag for AI infrastructure spending. Microsoft, however, is pushing back on the idea that anything fundamental has changed. The company insists it's still on track to spend over $80 billion this fiscal year, though it's clearly recalibrating where and how it deploys resources. Some industry watchers suggest power constraints or improved efficiency could be driving the shift, while others point to Microsoft's evolving partnership with OpenAI, which is now sourcing cloud services from Oracle.
The market isn't sure what to make of it. AI is still the hottest ticket in town, with Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG), and Meta (NASDAQ:META) doubling down on their infrastructure bets. But questions are starting to creep indoes demand actually justify these sky-high capital expenditures? The emergence of cheaper AI models, like those from Chinese upstart DeepSeek, has only fueled skepticism. Meanwhile, European energy stocks, including Schneider Electric and Siemens Energy, took a hit on speculation that Big Tech's data center power needs may not be as insatiable as once thought.
Still, Microsoft isn't backing down. It maintains that this is business as usual, not a retreat. The company's relationship with OpenAI is evolving, giving the AI firm more flexibility to work with other cloud providers. Whether this is a minor tweak or the first real sign of an AI spending slowdown remains to be seen. One thing is certain: investors are watching closely. If AI infrastructure spending starts losing steam, the entire tech sector could feel the ripple effects.
This article first appeared on GuruFocus.