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Microsoft Scales Back Data Center Leases in US and Europe Amid Oversupply

Microsoft

Business Honor
28 March, 2025

Microsoft pulls back from new data center leases as demand forecasts adjust.

Microsoft has recently scaled back its data center expansion plans in the U.S. and Europe, abandoning projects that were expected to use up to 2 gigawatts of electricity. This decision is primarily due to an oversupply of data center capacity compared to the company’s adjusted demand forecasts, according to analysts at TD Cowen.

The move comes as Microsoft reassesses its infrastructure needs in light of slower-than-expected returns on its heavy artificial intelligence (AI) investments. The company has notably shifted away from supporting additional workloads for OpenAI, the maker of ChatGPT, which had previously been a major factor driving demand for new data center capacity.

While Microsoft has paused some of its data center leasing, its overall commitment to AI infrastructure remains strong. The company reaffirmed that it is on track to spend $80 billion on AI-related infrastructure this fiscal year. Despite the pullback, Microsoft emphasized that it will continue to expand its presence globally, albeit at a more measured pace in certain regions.

The decision to cut back on data center leases has led other tech giants, such as Google and Meta, to step in and absorb the excess capacity in markets outside the U.S., with Meta covering some of the U.S. needs. The move also reflects growing investor skepticism over the pace of returns from AI spending, particularly as Chinese startup DeepSeek has gained attention for offering AI technology at significantly lower costs than its Western competitors.

Microsoft’s reduced reliance on new data center capacity comes as part of a broader recalibration of its AI strategy, as it focuses on optimizing existing infrastructure and managing costs more effectively in the face of uncertain demand.