Microsoft is winding down an arrangement to rent AI computing capacity from Oracle after deciding not to renew a contract signed in 2023, people familiar with the matter told Bloomberg News.
The retreat comes amid a selloff in AI infrastructure stocks and a wider Microsoft review of more than $80bn in contracts with outside cloud providers. It reads less like one cancelled order than a signal about what capacity the biggest buyers still think is worth paying for.
After letting the contract lapse, Microsoft has been switching off the rented Oracle capacity in recent months, Bloomberg reported. The hardware ran an older generation of Nvidia chips that no longer matched what the company needs.
The Nasdaq 100 dropped 6.36% that day, as investors pulled money from chipmakers and other stocks linked to AI infrastructure.
Both stocks had already come under pressure this week, after a Democratic sweep in the US midterm elections raised worries that tighter scrutiny could threaten the AI industry's expansion.
Oracle announced the multi-year agreement in 2023, saying Microsoft would use its OCI AI infrastructure to run the AI-assisted version of the Bing search engine.
Neither side disclosed the financial terms, and Bloomberg could not establish how large the deal was in full.
Demand for OCI’s (Oracle Cloud Infrastructure) AI infrastructure remains strong, including for earlier-generation GPUs
The Oracle contract is one thread in a much larger book. Microsoft has committed more than $80bn to renting capacity from other cloud firms, including CoreWeave, Nscale and Nebius, and its leaders have grown frustrated with the cost and delays, Bloomberg reported.
The company is reassessing those outside contracts, The Next Web said. Separate talks to lease more Oracle capacity collapsed in June, Business Insider reported.
- 2023Oracle signs with Microsoft
A multi-year deal to run the AI-assisted version of Bing on OCI.
- JuneSecond round of talks fails
Negotiations to lease additional Oracle capacity collapse, Business Insider reported.
- Recent monthsCapacity switched off
Microsoft stops using the rented Oracle computing after declining to renew.
- ThursdayIREN pushes deliveries back
The AI cloud firm delays infrastructure after Microsoft asks for network design changes.
- This weekNscale option declined
Microsoft passes on expanding a Texas deal, weeks after leaving a UK site.
As delays and costs mount, oversight of those projects has tightened. Microsoft is exercising closer control over data-centre work run by neocloud providers including IREN, Nebius and Nscale, Bloomberg reported.
IREN said on Thursday that it had delayed some infrastructure deliveries after Microsoft asked for changes to its network design.
This week, Microsoft also passed on an option to expand a Nscale deal in Texas, after withdrawing from a Nscale site in the UK several weeks earlier.
Oracle shares fall as the reports land
Oracle stock traded at $111.35 after touching a session high of $119.70, and fell as low as $109.21, its weakest level since February 2024.
The accounts of the share move differ. The Indian Express reported that shares of both Oracle and Microsoft were flat in afternoon trading, while The Next Web put Oracle about 3% lower.
| Outlet | What it reported on Oracle shares |
|---|---|
| The Indian Express | Flat in afternoon trading, alongside Microsoft |
| The Next Web | About 3% lower |
| Investinglive | $111.35, after a $119.70 session high and a low of $109.21 |
Free cash flow turns negative
Heavy spending on AI data centres has pushed Oracle's free cash flow below zero and left its credit rating one notch above junk, according to The Next Web. Its shares have more than halved since a June peak.
Gartner has warned that much of the spending on AI infrastructure could face large write-downs as newer chips arrive.
What remains unconfirmed
The scope and timing of any wind-down remain unconfirmed, according to Investinglive.
One open question is whether Microsoft is changing where it gets computing resources or reducing its planned capacity additions.
Oracle's public line and Microsoft's actions
Oracle
Public position
- Says demand for OCI AI infrastructure remains strong
- Says earlier-generation GPUs are still wanted
Microsoft
What it is doing
- Declined to renew the 2023 Oracle contract
- Has been switching the rented capacity off for months
- Is reassessing more than $80bn in outside contracts
The wider market went the other way. The S&P 500, the Nasdaq Composite, the Russell 2000 and the Nasdaq 100 all finished higher on the day, though off their highs.
The next dated checkpoint is IREN: it moved its target for putting more than $4bn in annualised revenue capacity into operation from year-end to January, and may push it again to late February after Microsoft asked for design changes.
