Microsoft’s ‘fraying relationship’ with OpenAI blamed for datacentre growth plan rollback

Microsoft has deserted a deliberate 2GW growth of its datacentre footprint throughout the US and Europe because of its softening relationship with OpenAI, an analyst observe from TD Cowen has advised.

The doc states that Microsoft has cancelled and deferred datacentre lease agreements in each the US and Europe up to now month, and “walked away from +2GW” of capability over the course of the previous six months that it was within the technique of leasing.

“In our view, the pullback on new capability leasing by Microsoft was largely pushed by the choice to not assist incremental OpenAI coaching workloads,” stated the TD Cowen analyst observe, dated 26 March 2025. “We [also] proceed to imagine the lease cancellations and deferrals of capability factors to datacentre oversupply relative to the present demand forecast.

“As such, we imagine the lease deferrals are supposed to offer Microsoft with a medium-term runway of capability in main markets to assist cloud/inference workloads, with Microsoft cancelling leases for capability that exceeds its up to date medium-term capability wants.”

The information comes a number of months after particulars emerged that Microsoft tweaked the phrases of an exclusivity contract it had with OpenAI pertaining to its use of the Azure public cloud when deciding the place to host new workloads.

The main points of this reworked settlement have been printed in a Microsoft weblog submit, dated 21 January 2025, that confirmed OpenAI had just lately made a “giant Azure dedication” that included “adjustments to the exclusivity on new capability, shifting to a mannequin the place Microsoft has a proper of first refusal (ROFR)”.

This implies Microsoft will get first refusal on whether or not or not it desires to host OpenAI workloads, however OpenAI additionally reserves the precise to construct its personal capability with different companions if Microsoft can’t meet its wants. “To additional assist OpenAI, Microsoft has authorised OpenAI’s means to construct extra capability, primarily for analysis and coaching of fashions,” the weblog submit added.

Across the similar time, in January 2025, OpenAI went public with The Stargate Mission initiative, a $500bn effort to construct out OpenAI’s infrastructure over the subsequent 4 years, with Softbank, Oracle, MGX and OpenAI as fairness funders for the undertaking.

Microsoft was listed as a know-how associate for The Stargate Mission, however its lack of monetary involvement got here at a time of rising press hypothesis about – what TD Cowen described in its 24 January analyst observe – the “fraying relationship” between the 2 corporations.

“We imagine the announcement of The Stargate Mission with Oracle is an additional proof level of a shift within the allocation of incremental OpenAI enterprise between Microsoft and Oracle,” stated the January 2025 analyst observe from TD Cowen. “OpenAI leaders [have been] highlighting that Microsoft couldn’t sustain with its datacentre wants because it was shifting too slowly.”

And that is why Microsoft has been retreating from its leasing commitments in sure geographies, the corporate stated in its March 2025 analyst observe.

Nevertheless, the capability that Microsoft is now not fascinated with is being snapped up by its opponents, continued TD Cowen.

“Our checks level to Google stepping in to backfill capability that Microsoft walked away from in worldwide markets … [and] Meta backfilling capability within the US, as each of those hyperscalers are within the midst of a cloth ramp in datacentre demand,” it added.  

Laptop Weekly contacted Microsoft for remark, however no response had been obtained on the time of publication.