An analyst report on data centers and Microsoft released by US investment bank TD Cowen raised concerns about the sustainability of the artificial intelligence industry, which may have also contributed to Friday's massive market sell-off.
"Our channel checks indicate that Microsoft has: 1) canceled U.S. lease agreements with at least two private data center operators totaling 'several hundred megawatts'; 2) reduced the number of SOQs it converts into lease agreements; and 3) reallocated a significant portion of its international spending to the U.S.," data center analyst Michael Elias said in a note released Friday.
The analyst said that a statement of qualifications (SOQ) is often a precursor to signing a data center lease agreement. "MWs" refers to megawatts.
Elias continued: "When combined with our previous channel investigations, this suggests that Microsoft may be facing an oversupply situation."
The report caused a stir on Wall Street, with traders circulating it among themselves over the weekend.
"Many investors are understandably concerned about what this means, especially if it is an early signal that AI demand has plateaued and we are no longer facing a shortage of computing power," a report on the Jefferies trading floor said. "This report is 'likely to be one of the reasons for the sell-off in the tech sector.'"
On Friday, the Dow Jones Industrial Average plummeted 700 points, marking the worst sell-off so far in 2025. Nvidia, the most closely associated and popular company with artificial intelligence, fell 4%, and Broadcom's stock price also fell 4%. Among data center stocks, Digital Realty Trust and Equinix fell 4% and 2% respectively. SuperMicroComputers shares fell 5%. VistraCorp, an energy stock related to the development of artificial intelligence, plunged nearly 8% on Friday.
Selling pressure on the technology sector intensified on Friday afternoon as news of the TD Cowen report spread. However, most of these stocks were holding steady or even rising in premarket trading Monday.
TD Cowen's report states that Microsoft has terminated some lease agreements citing "facility/power delays." CNBC has contacted Microsoft for comment but has not yet received a response. Jefferies' trading desk said Microsoft's investor relations department "strongly refutes" any suggestion that the company's data center strategy has changed.
Thanks to its strategic partnership with OpenAI, Microsoft is seen as one of the key driving forces in the artificial intelligence industry, alongside Meta. Wall Street is paying close attention to their capital spending plans to determine whether the momentum in the artificial intelligence industry will continue.
Earlier this year, DeepSeek, owned by China's ByteDance, launched a competitive artificial intelligence model that was said to cost far less to develop than models from companies such as OpenAI, triggering a sharp sell-off in AI-related stocks amid concerns that building as much data center capacity might not be necessary. These concerns have been somewhat assuaged over the past month as Microsoft and other big tech companies have reiterated or boosted their spending plans on artificial intelligence as they reported earnings.
TD Cowen’s report seems to have once again triggered some of people’s concerns.