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Analysts Warn of AI Cooling with Microsoft Cancellation of AI Datacenter Leases
Microsoft's cancellation of a handful of U.S.-based AI datacenter leases last week has some analysts concerned about the future of generative AI.
On Sunday, investment firm TD Cowen posted a message on X that said Microsoft had halted contracts with two private datacenters "totaling a couple of hundred MWs" that had been used to power the company's generative AI efforts. According to the investment firm, Microsoft backed out of the contracts, citing issues with power delays in the datacenters as a breach of contract -- a tactic the firm pointed out was used by Meta to cancel datacenter leases when it was winding down its metaverse efforts.
TD Cowen also said Microsoft has paused or delayed statement of qualifications (SOQ) on numerous U.S.-based datacenters, signaling that their output may not be needed. While an SOQ is a signed intent to lease, it is not a signed lease.
While TD Cowen acknowledges it has no insider information, the actions taken by Microsoft have led the investment firm into believing Microsoft is in an "oversupply position" with AI datacenter power and may be looking to scale down, due to internal future projections. Per TD Cowen:
To that point, consider this: Microsoft was the most active lessee of capacity in 2023 and 1H24, at which time it was procuring capacity relative to a capacity forecast that contemplated incremental OpenAI workloads. However, as we believe is indicated by its decision to pause construction on a data center in Wisconsin—which our prior channel checks indicated was to support OpenAI—there is capacity that it has likely procured, particularly in areas where capacity is not fungible to cloud, where the company may have excess data center capacity relative to its new forecast.
Microsoft's CEO Satya Nadella may also be signaling growth revenue issues with generative AI technology. During an appearance on the Dwarkesh Podcast on Sunday, Nadella suggested that internal projections and growth targets are almost meaningless, compared to the growth of gross domestic product, making it hard for companies like Microsoft to measure their success in the AI market.
"So in 2025, as we sit here, I'm not an economist, at least I look at it and say we have a real growth challenge," Nadella said. "So, the first thing that we all have to do is, when we say this is like the Industrial Revolution, let's have that Industrial Revolution type of growth."
He clarified that to show the success of generative AI, the world's economy would need to grow 10% because of the technology (5%, adjusted for inflation), a far cry from where the market currently sits since the introduction and adoption of generative AI technology.