Microsoft Corp. is scaling back its data center expansion plans, withdrawing from several projects across multiple continents. According to a Thursday Bloomberg report, citing sources with knowledge of the matter, the tech giant has either halted negotiations or delayed construction in locations including Indonesia, the UK, Australia, Illinois, North Dakota, and Wisconsin.

Microsoft, one of the leaders in AI services is reportedly reevaluating its investments in infrastructure powering artificial intelligence (AI) and cloud computing. This has startled most investors because the projected demand for AI-driven cloud services is still high. 

Some analysts believe the pullback resulted from construction constraints such as power and material shortages, while others see it as a sign that the forecasted AI adoption rate is not yet justifying the immense costs associated with server farm development. 

Microsoft walks away from data center projects, stocks drop

The general sentiment among investors around AI equities is pertinently cautious, and could have caused Microsoft’s stock (MSFT) to decline about 8.71% this year, per Yahoo Finance data. The retrenchment has affected the broader tech sector, particularly chipmakers like Nvidia Corp., which rely on data center budgets for a significant portion of their revenue.

A Microsoft spokesperson admitted that the tech company has adjusted its expansion plans, although they declined to comment on specific projects. 

“We plan our data center capacity needs years in advance to ensure we have sufficient infrastructure in the right places,” the spokesperson said. “As AI demand continues to grow, and our data center presence continues to expand, the changes we have made demonstrate the flexibility of our strategy.”

Closures and construction halts across Europe, Asia, and the US

According to a March 26 report by Cryptopolitan, in the UK, Microsoft abandoned negotiations for a site between London and Cambridge. The location was being marketed for its capability to support high-performance Nvidia AI chips.

In London, Microsoft had been negotiating to lease space at Ada Infrastructure’s 210-megawatt Docklands data center, located near the Canary Wharf financial district. The company hasn’t quite shown its commitment to building the center, so Ada Infrastructure is advertising the site to other potential tenants.

In the United States, the company halted negotiations for a data center near Chicago and backed away from a proposal to acquire additional cloud computing capacity from CoreWeave Inc. 

CoreWeave CEO Michael Intrator confirmed Microsoft’s decision but did not specify the number of affected projects or their locations. He added that CoreWeave had already secured another buyer for the capacity.

Elsewhere, Microsoft put construction on hold at a data center campus an hour outside Jakarta, Indonesia, and at a facility in Mount Pleasant, Wisconsin. The Wisconsin site, part of a development visited by former US President Joe Biden in May 2024, already had huge numbers in investments poured into it. Microsoft supposedly spent $262 million in its first six months of development, $40 million of which went to concrete alone.

The delays have also affected negotiations for a data center in North Dakota. Applied Digital Corp., a data center operator, had initially been in talks with Microsoft for a lease agreement but found the process slow-moving. 

The length of the negotiations led to the expiration of an exclusivity clause, which has opened the door for the company to seek other tenants. According to the latest news updates, Applied Digital has secured additional funding from Macquarie Asset Management and expects the site to become operational in 2026.

Infrastructure is limiting expansion, analysts say

Speaking to Bloomberg, Analysts at TD Cowen predicted that Microsoft’s retreat from new data center projects would reduce planned electricity capacity by approximately 2 gigawatts. The analysts attribute the decision to an oversupply of computing infrastructure for AI workloads.

Entities like Alphabet Inc.’s Google have stepped in to acquire some of Microsoft’s abandoned leases in Europe. Mark Zuckerberg’s Meta Platforms Inc. has also taken over some of its freed-up capacity.

Still, Microsoft insists it remains committed to data center expansion. “Thanks to the significant investments we have made up to this point, we are well positioned to meet our current and increasing customer demand,” the company reiterated. “While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions.”

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