Microsoft Winds Down Oracle AI Cloud Deal as It Reassesses $80 Billion in Outside Capacity

Microsoft Corp. is winding down an arrangement to rent AI computing capacity from Oracle Corp., declining to renew a 2023 contract, as the software giant reassesses billions of dollars in cloud partnerships, Bloomberg News reported Friday, citing people familiar with the matter.

The deal, announced in 2023, gave Microsoft Oracle servers to run its AI-powered Bing search engine, Bloomberg could not determine the full size of the contract. Microsoft has been switching off the rented capacity in recent months after deciding not to renew.

The servers ran an older generation of Nvidia chips and no longer matched what Microsoft needed, the people said. As Microsoft's AI models have grown larger and more demanding, the older hardware delivered less computing power for the electricity and money spent on it, according to the report. The decision is not a cut to Microsoft's AI spending, but a shift in where and how the company buys computing capacity, favouring hardware and partners that match its current technical requirements.

Microsoft has committed more than $80 billion to renting capacity from outside cloud providers, including CoreWeave, Nscale and Nebius, to support its AI operations. Its leaders have grown frustrated with their costs and delays, Bloomberg said. This week, Microsoft reportedly turned down an option to expand a Nscale deal in Texas, weeks after pulling out of a Nscale site in the UK.

The Oracle wind-down is not the only sign of a rethink. AI cloud company IREN said Thursday it had delayed some infrastructure deliveries after Microsoft requested changes to its network design, pushing back IREN's target for bringing more than $4 billion in annualised revenue capacity online from the end of the year to January, with a possible further delay until late February.

Oracle pushed back on the suggestion that demand for its cloud infrastructure is weakening. The company said demand for its AI infrastructure remains strong, including for earlier-generation graphics processors, and that capacity which came up for renewal in its fiscal first quarter was renewed or resold to other customers under long-term contracts at prices 20 percent above the previous agreements.

Microsoft declined to comment on the report. Oracle shares fell about 3% on Friday, while Microsoft shares were little changed. In delayed trading, Microsoft shares were down 0.7% and Oracle shares were up 0.03%.

The news comes as the wider race for AI computing power continues at full speed, even as big cloud buyers grow more specific about the hardware they need.