Microsoft Reportedly Withdraws from Data Center Leasing Negotiations or Development in Multiple Locations

Microsoft has scaled back its data center projects globally, indicating a more stringent review of its plans to build server clusters powering AI and cloud computing. Insiders report that Microsoft has recently suspended site selection negotiations or delayed development in Indonesia, the UK, Australia, and the US states of Illinois, North Dakota, and Wisconsin.

As an industry leader in commercialized AI services, Microsoft has benefited from its close collaboration with OpenAI. Investors are closely monitoring Microsoft's spending plans to understand long-term market demand for cloud computing and AI services. It's unclear whether Microsoft's reduction in data center construction is due to expectations of future demand decline or temporary construction challenges such as power supply shortages and building material supply issues.

Insiders reveal that Microsoft recently withdrew from negotiations to lease a site between London and Cambridge, UK, which was marketed for its ability to accommodate advanced NVIDIA chips. The company has also suspended leasing negotiations for a data center near Chicago.

Microsoft has also slowed its negotiation processes. Insiders disclose that Microsoft had been in talks to lease Ada Infrastructure's 210MW Docklands data center in London but has not committed to the project. US data center company Applied Digital had negotiated with Microsoft to lease a server farm complex in North Dakota, but the negotiations dragged on until an exclusivity clause expired.

Meanwhile, construction of some data centers has been delayed. Insiders say that part of the work on Microsoft's data center park about an hour's drive from Jakarta, Indonesia, has been suspended. The company has also paused some expansion plans for its data center park in Mount Pleasant, Wisconsin.

However, a Microsoft spokesperson stated that the company remains committed to its $3.3 billion project in Wisconsin, which is expected to come online next year, and indicated that preliminary expansion work has begun. A Microsoft spokesperson in Jakarta said that the company's central cloud computing region in Indonesia is still planned to go live in Q2 2025 but did not respond to the suspended portions of the project.

Additionally, Microsoft recently abandoned a proposal to acquire more cloud computing capacity from AI cloud giant CoreWeave. CoreWeave CEO Michael Intrator stated that although Microsoft withdrew from the deal, CoreWeave has found other buyers to fill this cloud computing demand.

A Microsoft spokesperson stated: "We typically plan data center capacity needs years in advance to ensure we have adequate infrastructure in the right places. As AI demand continues to grow, our data center footprint is expanding. These adjustments demonstrate the flexibility of our strategy."

Microsoft expects to invest about $80 billion in data center construction by the end of fiscal year 2025. However, the company has previously indicated that the pace of new infrastructure construction will slow in the next fiscal year, shifting focus from building new data centers to optimizing existing facilities (installing servers and other equipment).

Some investors believe this adjustment suggests that the growth in AI computing demand may not be sufficient to support Microsoft's massive investment in data centers. This concern has recently impacted tech stocks, especially chip manufacturers like NVIDIA.

Investment bank TD Cowen released a report last week stating that Microsoft has abandoned new data center projects with about 2 gigawatts (GW) of power capacity in the US and Europe, suggesting that Microsoft's data center supply has exceeded current demand forecasts. Alibaba Chairman Daniel Zhang also warned last month about a potential bubble in data center construction, indicating that new projects might exceed demand for AI services.

Furthermore, OpenAI announced earlier this year a joint venture with SoftBank and Oracle, planning to invest up to $500 billion in AI infrastructure. TD Cowen analysts believe OpenAI may be shifting some of its computing needs from Microsoft to Oracle. CoreWeave CEO Michael Intrator also views Microsoft's investment reduction as more of an isolated incident rather than an industry-wide trend, stating, "Microsoft's relationship with OpenAI has changed, so some fluctuations are inevitable."

Ed Socia, Research Director at industry intelligence firm DatacenterHawk, believes cloud computing companies are readjusting their server cluster construction plans to cut costs and prioritize projects that can come online faster. He says, "Some data center projects that initially seemed fastest turned out to have slower labor, supply chain, and power delivery speeds than expected. As a result, companies have had to adjust their short-term strategies and pivot to other markets."