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Markets Spooked By Microsoft AI Demand Questions

Is Microsoft backpeddling on its AI datacenter buildout plans? That’s the question prompted by a TD Cowen report late last week stating that Microsoft has canceled agreements with at least two private datacenter operators in the U.S.; has pulled back statements of qualifications (SOQs) that precede formal agreements for other datacenter builds; and has shifted some international datacenter spending back to the U.S.

The report caused a flurry of speculation that Microsoft is seeing less demand for AI datacenters than it planned for, as well as elevating fears about an AI infrastructure glut in general. The report fallout continued this week, with Microsoft shares falling on Monday and in early trading Tuesday. The market scare has spread to other AI-infrastructure-focused shares too. NVIDIA shares have lost 20% of their value over the past two days, and Arista Networks shares are down almost 20% in the past week.

What's Microsoft's Investment Plan?

Quotes from Microsoft CEO Satya Nadella during a podcast with Dwarkesh Patel fanned the flames when Nadella cited the potential of overbuild for AI and noted that he will be leasing datacenter capacity in the future. “And by the way, one of the things is that there will be overbuild,” the CEO said. And a bit later: “I am thrilled that I'm going to be leasing a lot of capacity in '27, '28.”

But Microsoft continues to support its plan to spend $80 billion in FY2025 on AI infrastructure. In a statement, the company said the $80 billion plan is still on track and that the plan is to “continue to grow strongly in all regions” while holding out the option to “strategically pace or adjust our infrastructure in some areas.”

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