Under CEO Satya Nadella, Microsoft has transformed its fortunes from legacy software company to cloud behemoth, but we might be seeing the upper limits of a maturing industry.
According to a new report by Bloomberg (thanks, Fordabrand), Microsoft is reducing its data center footprint in the United States and Europe. Bloomberg received the information via a memo originating from investment bank TD Cowen, which states Microsoft plans to reduce its leases representing “a couple hundred megawatts.” Microsoft’s hyperscale Azure cloud data centers typically consume around a hundred megawatts according to some sources, which suggests that this cancellation represents at least two hyperscale data centers.
Indeed, Microsoft only recently secured an additional 475 megawatts of solar power in Texas specifically for its data center aspirations, and has been exploring nuclear energy as another way to power its energy needs without boosting its carbon emissions.
The reasons for Microsoft’s shift in strategy aren’t entirely clear right now, with Bloomberg offering speculations on potential oversupply, with demand waning.
Considering Microsoft Copilot, its OpenAI partnership, and future-facing technologies like Xbox Cloud Gaming all require data centers to operate — it could indicate that Microsoft has found an upper ceiling to demand for these products. Everything from Xbox Live, OneDrive, Outlook, and beyond all require vast amounts of data center processing to operate.
Is Microsoft expecting slowing demand? Perhaps, but it could also indicate that Microsoft may aim to grow capacity by focusing on efficiencies rather than raw power. China’s DeepSeek sent shockwaves through the industry a few weeks ago owing to its reportedly lower power consumption and boosted efficiency over OpenAI’s models, although the truth may be a little murkier.
It’s particularly odd, since Sam Altman of OpenAI and U.S. President Donald Trump announced only a short while ago the plan to invest upwards of half a trillion dollars into boosting American AI platforms. AI is often regarded as a national security issue these days, and the signal Microsoft is sending could be interpreted as tantamount to clearing the field for competitors.
In any case, we’ve reached out to Microsoft to learn more.
