Microsoft’s decision to cut back on data center spending may have contributed to the recent market sell-off, according to a recent analyst report. The TD Cowen report indicates that Microsoft has cancelled leases in the US and re-allocated its international spend to the US, potentially leading to an oversupply position for the company.
Analyst Michael Elias noted that these moves suggest Microsoft is scaling back on its data center operations, which may signal a plateauing demand for AI services. This concern is shared by traders at Jefferies, who believe the report was a major driver of the tech sector’s sell-off.
The news has sparked worries about the long-term sustainability of the AI trade, with some investors fearing that Microsoft and other major players may be overinvesting in data center capacity. The Dow Jones Industrial Average tumbled 700 points on Friday, with shares of Nvidia, Broadcom, Digital Realty Trust, and Equinix all falling.
However, a Microsoft spokesperson has denied any change to its data center strategy, stating that the company is well-positioned to meet current and increasing customer demand. Despite this, Wall Street remains focused on Microsoft’s capital expenditure plans for signals on the future of the AI trade.
The recent market sell-off is also seen as a response to concerns about the competitiveness of AI models developed by companies such as DeepSeek in China. While Microsoft and other major players have previously reported increased plans for AI spending, the TD report has reignited fears about the demand for data center capacity being met.
Source: https://www.cnbc.com/2025/02/24/a-microsoft-analyst-report-by-td-cowen-raised-concerns-about-the-ai-trade-and-helped-cause-fridays-market-sell-off.html