Microsoft Winds Down Oracle AI Cloud Deal as It Reviews $80 Billion in Rented Capacity

The arrangement dates from 2023, when Oracle agreed to supply Oracle Cloud Infrastructure servers to support Microsoft's AI-powered Bing search engine. Bloomberg could not determine the full size of the contract and did not name the Nvidia chip generation involved. Microsoft declined to comment on the deal.

The decision matters beyond the two companies because it bears on a central assumption of the AI infrastructure boom: that graphics processors bought at today's prices will keep earning rent for years after newer chips arrive. Cloud providers and their lenders have financed tens of billions of dollars of hardware on that basis.

Oracle rejected that reading. The company said demand for its AI infrastructure "remains strong, including for earlier-generation GPUs." It said GPU capacity that came up for renewal in its fiscal first quarter had either been renewed or resold to other customers on long-term contracts at 20% above the previous price, and that most of the GPUs in those renewals were at least four years old. Oracle did not disclose the value of the Microsoft contract or say who had taken the capacity.

Bloomberg described the move as part of a wider reassessment of Microsoft's cloud partnerships. According to the report, Microsoft has committed more than $80 billion to renting capacity from outside providers, including CoreWeave, Nscale and Nebius, and some executives have grown frustrated with high supplier costs and construction delays. Microsoft has tightened oversight of data centre construction, pulled out of projects it considers risky and discussed whether to sign further agreements with these providers. Bloomberg reported that facilities being developed by Nebius, IREN and Nscale were getting closer scrutiny.

Microsoft told Reuters that its infrastructure strategy combines company-owned data centres, leased facilities and outside partnerships, which it said gives it flexibility in bringing capacity online.

The review has already affected Nscale, the AI cloud company that filed in September to list on the New York Stock Exchange under the ticker NSCL. The Financial Times reported this week, citing three people familiar with the matter, that Microsoft had declined an option that would have more than doubled its contract with Nscale at a site in Ward County, Texas. A person familiar with the matter told the newspaper that the decision was taken months ago, before the listing filing, and does not affect Nscale's total contracted backlog of about $103bn. The existing Texas contract remains in place.

Nscale's prospectus puts that backlog at $103.4 billion of active and contracted value at the end of August, of which $2.6 billion was active. Agreements with Microsoft provide for up to about $43.8 billion through December 2033, and agreements with Anthropic for up to about $44.6 billion, so the two customers account for roughly 85% of the total. The filing says Nscale had no binding financing commitments for the Anthropic agreements, and that Anthropic can terminate a tranche without liability if it is delivered late.

Other suppliers are also under pressure. Shares in IREN, the former bitcoin miner that now rents out AI computing capacity, closed nearly 17% lower on November 5 after the company pushed back its target of more than $4 billion in annual recurring revenue from December to early 2027. It cited customer-requested changes to network infrastructure.

Microsoft and Oracle still work together elsewhere. Under a 2024 arrangement with OpenAI, Oracle Cloud Infrastructure extends Microsoft's Azure AI platform to provide additional capacity for OpenAI.