Microsoft has reportedly cancelled several U.S. data center leases amounting to hundreds of megawatts (MW) and has pulled back on converting Statements of Qualification (SOQ) into signed leases, according to an industry update by TD Cowen. The move suggests a possible oversupply issue in the data center market and a shift in Microsoft’s expansion strategy, including a reallocation of international spending toward U.S. operations.
According to TD Cowen’s channel checks, Microsoft terminated multiple lease agreements across the U.S. with at least two private data center operators, affecting leases totalling “a couple of hundred MW.” Some of these terminations were reportedly justified by facility power delays.
In addition to outright cancellations, Microsoft has also scaled back on converting SOQs into final lease agreements. SOQs serve as pre-approvals for data center leases, and converting them into signed agreements is a key indicator of imminent construction activity. The report suggests that Microsoft may either be delaying the conversion process or choosing not to move forward with certain lease agreements at all.
Furthermore, the tech giant is shifting a significant portion of its international investments back to the U.S., signalling a potential slowdown in overseas data centre expansion.
While Microsoft has not officially commented on the reasons for these cancellations and delays, TD Cowen analysts speculate that the move could be linked to an oversupply of data center capacity.
A previous report from TD Cowen had indicated that Microsoft walked away from multiple +100MW deals in early- and mid-stage negotiations across key Tier 1 markets in 2023. Additionally, the company abandoned plans for at least five major land acquisitions meant for data center development.
Microsoft’s revised demand forecast for AI infrastructure may also be a contributing factor. The company had previously planned aggressive expansion to support OpenAI, but recent reports suggest a potential excess of AI data center capacity relative to its revised focus.
This strategic shift suggests that Microsoft may be recalibrating its long-term data center investments, potentially in response to changing AI infrastructure needs and short-term capacity constraints. The move echoes similar actions by Meta, which cancelled a $4 billion capital expenditure program related to the metaverse in 2023.