Microsoft‘s (Nasdaq: MSFT) reported cancellation of data center leases has triggered investor anxiety about the sustainability of massive artificial intelligence investments, despite the tech giant’s insistence that its $80 billion infrastructure spending plan remains intact.
TD Cowen analysts reported Friday that Microsoft had scrapped leases totaling “a couple of hundred megawatts” of capacity with at least two private data center operators, causing ripple effects across technology and energy markets on Monday.
While Microsoft shares dipped only 1%, companies in the data center supply chain felt sharper impacts. Power providers Constellation Energy (Nasdaq: CEG) and Vistra Corp (NYSE: VST) fell 5.9% and 5.1%, while equipment makers Siemens Energy (ETR: ENR) dropped 7% and Schneider Electric (EPA: SU) lost 4%.
“Our plans to spend over $80B on infrastructure this fiscal year remains on track as we continue to grow at a record pace to meet customer demand,” a Microsoft spokesperson said in a statement, adding that the company might “strategically pace or adjust our infrastructure in some areas.”
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Investors now scrutinize the billions tech giants pump into AI infrastructure as immediate returns remain elusive. Chinese startup DeepSeek’s recent breakthrough — which showcased AI technology at significantly lower costs than Western rivals — has further fueled Wall Street’s skepticism about massive capital expenditures.
Analysts offer contrasting interpretations of Microsoft’s moves. Bernstein’s Mark Moelder suggested the company may have secured excessive capacity during earlier shortages, potentially “at a meaningful premium,” while Dan Morgan at Synovus Trust, which holds Microsoft shares, saw no fundamental strategy shift.
“I don’t construe it as any change in the big macro picture. Their desire is to build out these data centers,” Morgan said.
The development comes as Microsoft continues aggressive AI expansion, including participation in the $500 billion Stargate data center initiative alongside Oracle and SoftBank announced last month. The company claims it added “more capacity than any prior year in history” in 2023.
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