Tech & AI
Microsoft Winds Down Oracle AI Capacity Rental as Older Nvidia Chips Fall Short, Bloomberg Reports
Oracle shares fell about 4% on Friday after the report that Microsoft is switching off servers it rented for AI workloads.
HedgeWeekly Tech & AI Desk ·
Microsoft is winding down an agreement to rent artificial-intelligence computing capacity from Oracle, Bloomberg reported on Friday, citing people familiar with the matter. Microsoft declined to renew the contract and has been switching off the rented resources over recent months, the people said. The arrangement dates to 2023, when it was struck to supply servers for an AI-assisted version of Bing. Bloomberg could not establish the full value of the deal, and Microsoft declined to comment.
The reported reason is technical: the leased servers use older-generation Nvidia graphics processors (GPUs, the chips that train and run AI models), which no longer fit Microsoft's changing requirements. Oracle said demand for its AI infrastructure remains strong, including for earlier-generation GPUs. It said GPU capacity that came up for renewal in its fiscal first quarter was renewed or resold at a 20% premium to previous pricing, with most of those chips at least four years old. Oracle shares fell about 4% on Friday.
The report comes as Microsoft is also reviewing other outside capacity. Bloomberg has reported that Microsoft has committed more than $80 billion to rent capacity from providers including CoreWeave, Nscale and Nebius, and that it sent staff to supplier sites to check construction standards. Microsoft has told Reuters its approach combines owned data centres, leased facilities and outside partnerships, which it says gives it flexibility.
Why it matters: the episode tests a core assumption behind the AI-infrastructure trade, that older chips stay in demand long enough to repay the debt used to buy them. Oracle's pricing claim points one way; a large customer walking away points the other. It lands after a sharp chip-sector selloff on Thursday, when the Philadelphia Semiconductor Index fell 12%. Investors will watch whether Microsoft trims other rented capacity, what Oracle discloses about who takes the freed servers, and how neocloud lenders respond.