Microsoft Winds Down Arrangement to Rent AI Computing Capacity From Oracle

Microsoft chose not to renew the contract and has been turning off the capacity it rented from Oracle over recent months, the people told Bloomberg. They said the capacity had lost its value to Microsoft because it no longer met the company's evolving needs. Neither Microsoft nor Oracle immediately responded to requests for comment from Reuters, which followed the report. The report did not say how much capacity was involved or what the contract was worth.

The decision matters because Microsoft has been one of the largest buyers of outside AI computing, renting capacity from other cloud providers to meet demand from its own products and from customers while it builds more data centres of its own. A buyer of that size letting a contract lapse, rather than extending it, gives investors an unusual view of how the biggest cloud companies now value rented capacity, at a time when lenders, regulators and shareholders are questioning the economics of AI infrastructure spending.

Oracle shares fell nearly 3% in afternoon trading in New York after the report, while Microsoft shares were little changed.

The two companies have worked together on AI infrastructure for several years. In November 2023 Oracle said Microsoft was using Oracle Cloud Infrastructure, alongside its own Azure systems, to run AI models behind conversational search in Bing. The report did not say whether the arrangement now being wound down is the same one. The companies also sell Oracle's database software inside Microsoft's Azure data centres, a separate partnership that was not part of the report.

For Oracle, the loss of a Microsoft rental contract is small next to its main AI commitments. The company's growth plans rest largely on a computing contract with OpenAI that was reported last year to be worth about $300 billion over roughly five years, and Oracle has taken on large future lease obligations to build the data centres needed to serve it. Any sign that a major customer is stepping back from rented Oracle capacity is likely to draw attention from investors who have already pushed the company's borrowing costs higher this year.

Microsoft has also been reviewing its arrangements with smaller specialist providers. Earlier this week it tightened oversight of data centre projects being built for it by the so-called neoclouds Nebius, IREN and Nscale, and IREN said it had pushed back a revenue target after Microsoft requested a design change at one of its sites.

The broader review covers partnerships worth billions of dollars, according to Bloomberg, but the report did not identify which other contracts are under examination or when Microsoft expects to finish the reassessment. Neither company has commented publicly on the scope or timing of the wind-down.