Microsoft plans to lean on fewer neoclouds as AI strain spreads

Microsoft is rethinking who it rents AI muscle from. The software giant is shrinking its roster of neocloud partners, leaning instead on a few key suppliers while it builds out its own data centers, according to people familiar with the matter. Bloomberg reported the plans first. Microsoft is still in the evaluation stage and hasn't decided which neoclouds get cut, two sources said.

The pullback would land on a corner of the AI trade that's already wobbling. Shares of CoreWeave, Nebius and IREN have all lost roughly half their value over the past month, even after a Friday rally. Rising interest rates and heft debt loads have investors spooked about how the buildout gets paid for. One recent industry review counted 323 neoclouds, and experts have predicted many won't survive.

Microsoft has built ties with CoreWeave, Nebius, Chronoscale, IREN, Lambda and Nscale, plus Oracle, which is pouring cash into AI infrastructure. Two people said Microsoft opted not to renew a deal with Oracle. It has already walked away from a U.K. site it planned to use with Nscale — Darren Hardman, Microsoft's CEO for the U.K. and Ireland, told CNBC in October the call came down to Nscale's access to electricity. The Financial Times reported this week that Microsoft also declined to renew a contract with Nscale in Texas, and Nscale hasn't updated its IPO prospectus since filing in mid-September.

A Microsoft spokesperson said the company's infrastructure strategy is built on flexibility and choice, blending Microsoft-owned data centers, leased facilities and third-party partnerships, and that Microsoft regularly reviews those investments against customer demand. The spokesperson called the review process a normal and responsible way to manage large infrastructure projects.

The strain is showing up in the numbers. In its Thursday earnings report, IREN said it handed data center capacity to Microsoft in August, but a Microsoft-requested networking equipment upgrade pushes that infrastructure online in January or February instead of this year. IREN shares popped 16% on Friday after the company said AI revenue more than doubled from the prior quarter, reaching $200 million. Co-CEO Daniel Roberts told CNBC there's a disconnect between what the public market is showing and what customers are doing, while acknowledging capital markets have grown more selective — now asking whether contracts can be delivered, financed and run at a profit.

Microsoft finance chief Amy Hood said in October that some GPU cloud contracts slipped to the first half of 2027, weighing on Azure growth. The company reported $45.2 billion in capital expenditures and finance leases in its latest quarter and said capex will accelerate in the second half of the fiscal year. CoreWeave and Nebius report quarterly results next week. Microsoft's neocloud bet traces back to ChatGPT's 2022 launch and the GPU demand it unleashed — CoreWeave, then a private startup with crypto mining roots, disclosed that 62% of its 2024 revenue came from Microsoft when it went public last year.