The Blubber

A market note highlighting a potential slowdown in Microsoft's data center leasing caught investors' attention on Monday, reinforcing concerns that the AI-driven stock surge may be overstated.

Analysts at TD Cowen reported Friday that Microsoft had scrapped significant data center lease agreements in the U.S., hinting at possible oversupply as the company expands its AI infrastructure. According to the firm’s supply chain checks, Microsoft has canceled leases amounting to "a couple of hundred megawatts" of capacity with at least two private data center operators, the note led by analyst Michael Elias stated.

A Microsoft spokesperson confirmed that the company’s planned $80 billion investment in AI and cloud capacity this fiscal year remains unchanged. "While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions," the spokesperson added.

Microsoft shares showed little movement, dipping 0.8% in late Monday trading, but the news weighed on related sectors. Siemens Energy and Schneider Electric saw their stocks fall 7% and 4%, respectively, while U.S. utilities Constellation Energy and Vistra, both of which supply power to data centers, lost 6.2% and 3.7%.

Investor doubts have been mounting over the massive sums U.S. tech giants are pouring into AI, especially as returns remain slow and Chinese startup DeepSeek demonstrates AI advancements at significantly lower costs.

TD Cowen also noted that Microsoft had paused the conversion of statement-of-qualification agreements—an early step in the leasing process—mirroring similar cost-cutting moves by Meta Platforms.

Still, some analysts see no major shift in Microsoft's broader strategy. "I don't see this as a change in their long-term outlook. Their goal remains to expand data center capacity," said Dan Morgan, senior portfolio manager at Synovus Trust, which holds Microsoft shares.

If confirmed, these lease cancellations would mark a sharp turn for Microsoft, which has been aggressively investing in data centers to alleviate supply constraints that have hindered its ability to meet AI demand.

Bernstein analyst Mark Moelder suggested that the move could signal slowing demand, especially in light of weak quarterly results from major cloud providers. However, he also noted that Microsoft's recent leasing spree might have led the company to secure more capacity than it currently needs.

"Microsoft had to secure enough capacity to meet demand and likely faced challenges in finding available space. As a result, they may have leased facilities at a premium and arranged for more future capacity than was necessary," Moelder explained.