Microsoft winds down Oracle AI computing deal as it reassesses cloud contracts

Microsoft is winding down a 2023 deal to rent AI computing power from Oracle after deciding not to renew the contract, Bloomberg reported, citing people familiar with the matter. The company has been switching off the rented capacity in recent months because the servers ran older Nvidia chips that no longer matched its needs. The move comes as Microsoft reassesses more than $80 billion in contracts with outside cloud providers.

Older chips and ageing hardware concerns

Gartner has warned that much AI infrastructure spending could face large write-downs as newer chips arrive. The deal, announced in 2023, gave Microsoft Oracle servers to run its AI-powered Bing search, and Bloomberg could not determine its full size. Separate talks for Microsoft to lease more Oracle capacity collapsed in June, Business Insider reported.

Oracle response and wider Microsoft cloud plans

Oracle said demand for its AI infrastructure remains strong, including for older chips, and its shares fell about 3%. Microsoft has committed more than $80B to rent capacity from other cloud firms such as CoreWeave, Nscale and Nebius. Its leaders have grown frustrated with their costs and delays, Bloomberg said. This week, it reportedly turned down an option to expand a Nscale deal in Texas, weeks after pulling out of a Nscale site in the UK.

Oracle financial pressure

Heavy spending on AI data centres has pushed Oracle's free cash flow negative and its credit rating to one notch above junk. Its shares have more than halved since a June peak. Microsoft declined to comment.

Sources: The Next Web · Reuters · Bloomberg Law