Microsoft Scales Back Data Center Plans Amid AI Demand Uncertainty
Microsoft has canceled several large-scale data center projects in the US and Europe over the past six months, amounting to approximately 2 gigawatts of planned electricity use, according to a new report from TD Cowen. The move reflects a more cautious infrastructure strategy considering lower-than-expected demand forecasts, particularly from OpenAI, the company behind ChatGPT.
The analysis, led by Michael Elias, revealed that Microsoft’s decision to pause new leasing commitments was significantly influenced by a reduced need to support additional AI training workloads from OpenAI.
AI Spending Under Investor Pressure
Reuters reports that Microsoft’s scaled-back infrastructure approach comes amid growing investor concerns about the massive capital being poured into AI development. Returns have been slower than anticipated, and the emergence of Chinese AI startup DeepSeek, which demonstrated competitive AI performance at a much lower cost, has intensified scrutiny on Western tech firms.
Despite its slowdown, Microsoft maintains that its broader AI infrastructure investments remain on track. The company reaffirmed its commitment to spending $80 billion on AI-related infrastructure during the current fiscal year, noting that “it may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions.”
Google and Meta Step In to Fill the Gap
As Microsoft scales back, other tech giants are stepping up. TD Cowen’s supply chain insights indicate that Alphabet (Google) has taken over some of Microsoft’s capacity plans in international markets, while Meta Platforms has done the same in the United States.
According to Reuters, the firm also previously reported that Microsoft had canceled leases totaling several hundred megawatts with at least two private data center operators.
However, CoreWeave, a cloud computing startup, and Microsoft’s key infrastructure partner stated earlier this month that it had not experienced any contract cancellations, countering reports from the Financial Times.
Also read: Microsoft to Invest in South Africa’s Cloud and AI Infrastructure
Microsoft and Meta executives have defended their aggressive AI spending, especially after DeepSeek’s rise in January raised questions about cost-efficiency. Both companies argue that massive infrastructure investment is essential to remain competitive in the rapidly evolving AI landscape.
Google recently announced plans to spend $75 billion this year on its AI expansion, 29% more than analysts had projected, while Meta is prepared to invest up to $65 billion.
