Microsoft Halts Expansion Plans, Yet Analysts Still Rank It Among Top Investment Picks

Microsoft Corp MSFT has shelved new data center projects in the US and Europe, potentially amounting to 2 gigawatts of electricity, possibly signifying AI computing overcapacity, Bloomberg reported Wednesday citing TD Cowen analysts.

In February, the analysts highlighted leases Microsoft had abandoned in the US. They described the latest move as the company’s choice to forgo some new business from ChatGPT maker OpenAI.

Microsoft and OpenAI this year restructured a multiyear deal, letting OpenAI use cloud-computing services from other companies, provided Microsoft did not want the business itself.

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The TD Cowen analysts said in a note that Microsoft’s retrenchment in the last six months included lease cancellations and deferrals.

According to Reuters, TD Cowen said in the note that its supply chain checks indicated that Microsoft’s pullback has led to Alphabet Inc.’s GOOG GOOGL Google to backfill the capacity in international markets. At the same time, Meta Platforms Inc. META had scooped up some of the freed capacity in Europe.

Microsoft says it remains on track to spend about $80 billion building AI data centers this fiscal year.

Chinese upstart DeepSeeks’s open-source AI model led to Wall Street questioning the sustainability of Microsoft, Meta, and Amazon.com Inc.’s AMZN capex outlays on AI models.

Goldman Sachs analyst Kash Rangan noted Microsoft as one of the best investment opportunities in the technology sector, citing its investments in the AI sector.

The analyst highlighted Microsoft’s AI investments, which are spread out across hardware and geography, signifying its long-term focus on the growing technology. Microsoft’s 365 and Azure are just two products that could grow in coming quarters, he added.

Price Action: MSFT stock was around flat at $390.01 at the last check Thursday.

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