Microsoft data center leases slowing, analysts say, raising investor attention

Reuters ^ | 02/25/2025 | Aditya Soni

[SeekAndFind]

An analyst note flagging a possible slowdown by Microsoft (MSFT.O), opens new tab in leasing data center capacity grabbed the market's attention on Monday, lending credence to skepticism among investors worried that the AI-led stock-market boom might be running out of steam.

TD Cowen analysts in a note Friday said the tech giant had scrapped leases for sizeable data center capacity in the United States, suggesting potential oversupply as it builds out artificial intelligence infrastructure.

The brokerage, citing its supply chain checks, said Microsoft has canceled leases totaling "a couple of hundred megawatts" of capacity with at least two private data-center operators, the analysts led by Michael Elias said.

Microsoft's plan to invest over $80 billion in AI and cloud capacity this fiscal year remains on track, a company spokesperson said. "While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions," the spokesperson added.

While Microsoft shares were little affected - the stock lost 1% on Monday - related companies took a hit. Shares of German firm Siemens Energy (ENR1n.DE), opens new tab and French company Schneider Electric (SCHN.PA), opens new tab fell 7% and 4%, respectively.

U.S. utility companies Constellation Energy (CEG.O), opens new tab and Vistra (VST.N), opens new tab, which provide power for data centers, lost 5.9% and 5.1%, respectively. Tech bellwethers were lower as part of a broader Nasdaq selloff.

Investor skepticism over the billions that U.S. tech firms have channeled into AI infrastructure has grown due to slow payoffs and breakthroughs at Chinese startup DeepSeek, which showcased AI tech at a much lower cost than its Western rivals.

[Tell It Right]

My take. AI is real, and will always be with us. But the investment in it has more hype value than intrinsic value.

[montag813]

AI providers are losing immense amounts of money on this. The absurdly overpriced NVDA chips, massive cost of space and power, and totally inefficient current method of generative AI is a loss-leader. They are trying to scale into a permanent moat, as did Amazon (successfully). MSFT and GOOG might make it. But many others will not.

[FearlessFreep]

One issue in Southside VA, where MSFT has a huge campus, is lack of electricity to power these data centers. I know of 2 projects on hold, locally, because they can't supply the electricity needed to maintain operations.

[Openurmind]

“My take. AI is real, and will always be with us.”

That is a total misconception. It is still on the ground floor and absolutely can be killed as it should be.

[Openurmind]

“AI providers are losing immense amounts of money on this.”

Good, it needs to die...

[sloanrb]

Microsoft announced they were building the US East 3 data center in 2021. Then there were no more updates. It still does not exist.

I remember when COVID first started there were capacity issues. Apparently there is now plenty of capacity.

[FearlessFreep]

I work on a site where 3 data centers have been completed and another will be turned over by end of this year. There are 4 other sites in construction and 2 additional sites on hold due to power demand.