Microsoft Walks Away From Oracle AI Deal as Balance Sheet Fears Bite

Microsoft has stopped renewing a deal to rent AI computing power from Oracle and is winding the contract down, Bloomberg reported Friday. The move is part of a broader review of billions of dollars in cloud partnerships. It lands days after Oracle lost a different AI deal, leaving the company's pipeline looking shakier than it did a week ago.

On Wednesday, Oracle canceled an estimated $7 billion chip-leasing deal with Tencent after pressure from the Trump administration, according to the Financial Times. That contract was worth roughly 1% of Oracle's backlog. Microsoft's decision is the second blow in a single week, and the market was already jittery before either one landed.

Steve Eisman, the investor made famous by The Big Short, summed up the mood on Friday's weekly wrap of The Real Eisman Playbook. 'The market has become petrified of Oracle's balance sheet and its need for capital,' he said, pointing to the company's fresh stock and bond sale. The numbers behind that fear: free cash flow of negative $23.7 billion in fiscal 2026, total debt of $167 billion, and another $20 billion of stock and notes sold on Nov. 2.

The Microsoft arrangement dates to 2023, when Oracle agreed to give Microsoft access to servers for an AI-assisted version of Bing. Microsoft has reportedly been switching that capacity off in recent months because the servers run on older-generation chips that no longer meet its specifications. The deal's full size couldn't be determined. Oracle says demand for its AI infrastructure remains strong, older GPUs included.

Oracle has receipts for that claim. On its first-quarter call in September, management said capacity up for renewal was renewed or resold at a 20% premium, even though most of those GPUs were at least four years old. S&P estimates OpenAI accounts for about half of Oracle's backlog, so the customer mix is the number to watch when Oracle reports in mid-December. TIKR tracks 42 analysts on the stock.