Microsoft Winds Down Oracle AI Cloud Deal Over Older Nvidia Chips

Microsoft is winding down a multi-year agreement to rent artificial intelligence computing capacity from Oracle, declining to renew a contract announced in 2023 that once powered an AI-assisted version of its Bing search engine, according to people familiar with the matter reported by Bloomberg and Inside AI News. Financial terms were never disclosed.

The core reason for the non-renewal is that the Oracle hardware relied on an older generation of Nvidia chips. As Microsoft's AI models have grown more complex and demanding, the older hardware no longer meets its evolving needs, making the rented capacity less valuable over time.

An Oracle spokesperson pushed back on any suggestion of weak demand for its cloud services, stating that interest remains robust across its portfolio, including for earlier-generation GPUs. Microsoft did not immediately respond to a request for comment.

The pullback is part of a broader pattern of Microsoft rethinking how it secures computing capacity to maximize returns on its AI investments, moving from renting capacity from third-party providers toward tighter control over its supply chain. AI cloud company IREN said on 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 annualized revenue capacity online from year-end to January, with a possible further delay until late February. Bloomberg also reported that Microsoft was tightening oversight of data center projects run by neocloud providers including IREN, Nebius, and Nscale amid delays and rising costs.

Microsoft shares were down about 1.0% in delayed trading, while Oracle shares were up about 0.8%.

The original 2023 deal was seen as a major validation of Oracle Cloud Infrastructure's AI capabilities, signaling that even the largest cloud providers were willing to look outside their own data centers to meet surging demand for AI compute. The non-renewal suggests Microsoft has since scaled up its own infrastructure or found more efficient ways to secure capacity aligned with its latest Nvidia chip generations.

For Oracle, the loss of the Microsoft contract is a reputational blow even if the financial impact is unclear, as the company has been marketing OCI as a cost-effective alternative to larger cloud providers. For the broader AI infrastructure market, the message is that the era of breakneck expansion may be giving way to consolidation and optimization, with vendors facing pressure to meet evolving technical standards or risk losing their largest customers.