Microsoft Corp. has canceled multiple data center leases and may scrap several more that are currently in the works, Bloomberg reported today.

A significant percentage of tech giants’ data center spending is driven by artificial intelligence demand. Microsoft’s lease cancellations raise the possibility the company is seeing less AI demand than originally expected, which could have implications for the broader market. But while Microsoft may be scaling back, other tech giants are doubling down: Apple Inc. and Alibaba Group Holding Ltd. both announced multimillion-dollar AI infrastructure investments this morning. 

Microsoft’s lease cancellations were detailed on Friday in a note from TD Cowen analysts. According to Bloomberg, the investment bank believes that Microsoft has voided contracts for data centers with about 200 megawatts in combined capacity. One megawatt corresponds to the electricity usage of several hundred households.

The software and cloud giant reportedly told suppliers that it’s canceling the contracts on account of delays in facility construction and power delivery. According to Bloomberg, Meta Platforms Inc. once used the same arguments as part of a push to reduce capital expenses.

Microsoft is reportedly scaling back its data center investments in other ways as well. Before a company signs a data center lease, it often inks an agreement called a statement of qualifications with its construction partners. Microsoft has reportedly pulled back on turning statements of qualifications into formal leases, although it’s currently unclear if the delay may lead to a termination of the deals in question. 

According to TD Cowen, Microsoft has also allowed agreements for existing sites representing more than 1 gigawatt of capacity to expire. One gigawatt corresponds to 1,000 megawatts. 

The news comes a few weeks after Microsoft revised the terms of its multibillion-dollar partnership with OpenAI. Originally, Microsoft was the AI provider’s sole cloud provider. The revised terms allow OpenAI to shift some workloads to competing cloud providers, which TD Cowen analysts highlighted as a potential factor behind Microsoft’s data center lease cancelations.

Despite the change to its OpenAI contract, Microsoft last month committed to spending about $80 billion on AI-enabled data centers through the end of its 2025 fiscal year. The company reaffirmed this plan in a statement today, saying that “our plans to spend over $80 billion on infrastructure this FY remains on track as we continue to grow at a record pace to meet customer demand.”

The report about Microsoft’s revised data center roadmap coincided with the announcement of not only but two major AI investment initiatives. 

Apple this morning pledged to spend $500 billion in the U.S. over four years. The company is planning “accelerated investments in AI and silicon engineering” as part of the initiative. The effort will see Apple add data center capacity in North Carolina, Iowa, Oregon, Arizona and Nevada.

The company will open a manufacturing facility in Houston to assemble servers for its data centers. The 250,000-square-foot hub will come online next year and is expected to create thousands of jobs. The servers it will produce are set to power Apple Intelligence, a suite of AI features the company introduced for iPhones last year. 

According to influential Apple analyst Ming-Chi Kuo, the company plans to equip the servers with AI-optimized chips. The Wall Street Journal, in turn, reported that Apple would have spent much of the $500 billion allocated to the initiative either way as part of its usual capital expenditures.

Alibaba, China’s largest e-commerce company, announced its own multibillion AI investment today. The company revealed plans to invest 380 billion yuan, or about $53 billion, in AI infrastructure over three years. That’s reportedly more than what Alibaba spent on AI and its public cloud platform over the past decade. 

Photo: Microsoft