Microsoft winds down Oracle AI cloud deal, report says

Microsoft ↘ 0.61% is ending an arrangement to rent artificial intelligence computing power from Oracle ↘ 1.44%. Bloomberg reported Friday, November 6, that the software maker has spent recent months shutting off the rented capacity after choosing not to renew the contract, according to people familiar with the matter. Bloomberg said the move is part of a wider review of billions of dollars in cloud partnerships. It is also the latest sign that Microsoft is becoming more selective about outside AI infrastructure.bloomberg.com

Older Chips, Changing Needs

According to the people cited by Bloomberg, the rented capacity became less useful over time because it no longer met Microsoft's specifications. The Oracle hardware ran on older-generation chips from Nvidia ↗ 2.32%, Investing.com reported. Microsoft declined to comment. An Oracle spokesperson said demand for its AI infrastructure remains strong, including for earlier-generation graphics processors, according to the same report. In September, Oracle said it was renewing contracts for four-year-old GPUs at a 20% premium to their original prices.investing.com

The deal was announced in 2023 to give Microsoft extra computing power for an AI-assisted version of its Bing search engine. It stood out at the time because Microsoft was renting servers from a cloud rival while demand for AI chips far exceeded supply. The total value of the arrangement could not be determined, Bloomberg reported. Reuters also picked up the report.marketscreener.com+1

Oracle Shares Slide

Oracle shares fell about 4% on Friday after the report. The news added to investor worries about AI infrastructure spending one day after a sharp selloff in tech stocks. On Thursday, the Nasdaq Composite dropped 5.5% and the Philadelphia Semiconductor Index PHLX Semiconductor Index ↗ 2.80% fell 12%, its steepest decline since March 2020, Investing.com reported.investing.com

Part of a Broader Pullback

The Oracle wind-down comes a day after reports that Microsoft passed on an option to more than double its agreement to rent computing power from British AI cloud provider Nscale at a data center in Texas. The Financial Times first reported that move on Thursday. A person familiar with the matter told Reuters the decision was made months ago and did not affect the existing Texas contract. Bloomberg reported that Microsoft decided not to go ahead because the project was still waiting for regulatory approval of a power connection.reuters.com+1

For Oracle, the key question is whether Microsoft's exit reflects weaker demand or simply how quickly AI hardware is going out of date. That uncertainty is likely to draw closer scrutiny from investors, even if the decision had more to do with chip specifications than with a pullback in spending.investing.com