Microsoft pulls out of AI data center projects in US and Europe – Report

Microsoft has terminated several data center leases in the US and Europe that were expected to consume 2 gigawatts (GWh) of electricity, Reuters reported on Wednesday, quoting TD Cowen analysts.

The decision is due to an oversupply of computing capacity for AI models compared to Microsoft’s existing forecasts for future demand, the report said. Data centers are physical computer clusters that power AI.

Microsoft earmarked $80 billion for AI data centers in 2025

The analysts said the cancellations, which happened over the past six months, also reflect Microsoft’s decision not to support additional AI training workloads from ChatGPT-maker, OpenAI.  Microsoft invested $13 billion in OpenAI, but has now allowed the firm to use cloud-computing services from other competitors like Google.

According to the Reuters report, Microsoft is still expected to spend up to $80 billion building AI data centers in the current fiscal year. However, spending is expected to slow during the second half of 2025, as the Redmond, Washington-based company focuses on outfitting existing centers with hardware and equipment.

Microsoft said while it may “strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions.”

Shares of Microsoft fell as much as 1.3% to $389 in Nasdaq stock market trading after the news.

After Microsoft’s pullback, Google and Meta have stepped in to fill the capacity gap in global and US markets, per the TD Cowen analysts. Google-owner Alphabet said recently that it is investing $75 billion in AI and Meta is reportedly investing $65 billion in AI infrastructure.

In February, the analysts reported that Microsoft had scrapped leases for about 200 megawatts of data center capacity with at least two operators.

Investors worried about huge AI spending by tech firms like Microsoft

Investors have become increasingly sceptical about the large sums of money that US tech companies are spending on AI due to slow returns.

Over the last year, Microsoft invested $19 billion to expand data center capacity for AI training and other workload demands. By cancelling some of its leases, the company may be realizing it may have been overzealous in its plans to invest in AI, per some media reports.

The emergence of Chinese AI startup DeepSeek also rattled investors. The company unveiled AI models that rival OpenAI’s and Meta’s most advanced models at a fraction of the cost. Executives from Microsoft and Meta defended their huge AI spending arguing that there is need to stay competitive in this cut-throat industry.

The release of DeepSeek-V3 and DeepSeek-R1 in January was seen as a major breakthrough, sparking a global selloff in global tech shares. Some Wall Street firms have now started to reassess the amount of money they are spending on development and key infrastructure such as data centers.

Bitcoin mining stocks fall

Meanwhile, Bitcoin mining shares fell after the Microsoft announcement. Bitfarms, CleanSpark, Core Scientific, Hut 8, Marathon Digital and Riot all declined by between 4% and 12%, according to Google Finance.

As CoinMetrics said in a report earlier this month, cryptocurrency miners are expanding into “AI data-center hosting as a way to expand revenue and repurpose existing infrastructure for high-performance computing.”

In June last year, Core Scientific reportedly said it will provide up to “200 megawatts of hardware capacity to support CoreWeave’s AI workloads.” Asset manager VanEck also said it expects the market capitalizations of Bitcoin mining stocks to grow by $37 billion with investments in AI.

According to VanEck, many investors are still not aware that Bitcoin miners now have significant exposure to AI. Their relationship is simple, AI companies require energy which Bitcoin miners have.

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