Microsoft Scales Back Data Center Expansion as AI Market Dynamics Shift

The tech giant cancels or defers 2 gigawatts of projects in the U.S. and Europe, citing oversupply, OpenAI partnership changes, and competition from cost-efficient AI models.

• Microsoft has canceled or deferred data center projects totaling 2 gigawatts in the U.S. and Europe over the past six months, with additional lease cancellations reported in the last month.
• The decision reflects oversupply concerns and reduced demand forecasts, partly influenced by changes in its partnership with OpenAI, which now allows OpenAI to use other cloud platforms.
• Growing competition from Chinese AI startup DeepSeek, which offers cost-efficient models, and investor skepticism about AI spending have added pressure on Microsoft's strategy.
• Despite the pullback, Microsoft remains committed to its $80 billion investment in AI and cloud infrastructure for the fiscal year.
• Google and Meta are reportedly stepping in to fill some of the vacated data center capacity in international and U.S. markets, respectively.

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