Microsoft is shrinking its roster of neocloud partners to prioritize its own data center footprint and focus on a smaller number of key suppliers, according to people familiar with the matter. The company is currently in an evaluation stage to determine which providers it will stop using, and sources indicated that Microsoft opted not to renew a deal with Oracle. This shift comes as the artificial intelligence infrastructure market faces pressure from rising borrowing costs, heavy debt loads, and concerns regarding the long-term sustainability of the buildout.
Microsoft has previously forged relationships with several neoclouds, including CoreWeave, Nebius, Chronoscale, IREN, Lambda, and Nscale. The company has already reduced its engagement with U.K.-based Nscale, walking away from a site in England due to the provider's inability to secure electricity, according to Microsoft's CEO for the U.K. and Ireland, Darren Hardman. Additionally, a Financial Times report stated that Microsoft decided against renewing a contract with Nscale in Texas.
Industry analysts have noted that the neocloud sector is increasingly turbulent. Shares of CoreWeave, Nebius, and IREN have fallen by approximately half over the past month. While IREN reported that its AI revenue more than doubled to $200 million in the prior quarter, the company noted that Microsoft requested a networking equipment upgrade that delayed the activation of data center capacity from this year to January or February.
Microsoft's capital expenditures and finance leases reached $45.2 billion in the latest quarter, with the company forecasting that spending will accelerate in the second half of the fiscal year. During an October earnings call, Microsoft finance chief Amy Hood noted that some cloud contracts involving graphics processing units were delayed until the first half of 2027, which impacted Azure cloud growth.
IREN co-CEO Daniel Roberts acknowledged the tightening market conditions, noting that capital markets have become more selective regarding the ability of providers to deliver and finance projects profitably. "Capital markets have become more selective in the last few weeks, and the questions have undoubtedly moved from how big the contract is to whether it can be delivered, financed, and run at a profit," Roberts said.
In an emailed statement, a Microsoft spokesperson said the company's infrastructure strategy is "built on flexibility and choice." The spokesperson added, "We combine Microsoft-owned datacenters, leased facilities and strategic partnerships with third-party providers to deliver the capacity our customers need, where and when they need it."
