Microsoft is phasing out an artificial intelligence (AI) computing partnership with Oracle Corp after choosing not to renew a 2023 agreement, Bloomberg has reported, citing people familiar with the matter. According to the report, Microsoft has steadily deactivated rented server capacity in recent months. The Oracle-hosted machines relied on older generations of Nvidia Corp. chips that no longer align with Microsoft’s current computing requirements. The shift highlights growing industry unease surrounding hardware obsolescence; research firm Gartner Inc. has warned that aggressive capital expenditures on AI infrastructure risk significant write-downs as faster, more efficient chips enter the market.The loss of capacity utilization compounds existing headwinds for Oracle. Substantial capital outlays toward AI data center construction have driven the company’s free cash flow into negative territory, leaving its credit rating hovering just one level above junk status. Oracle’s stock has fallen by more than half since reaching a high in June.Neither company disclosed the total financial value of the contract when it was announced in 2023 to support Microsoft’s AI-powered Bing search engine, and Bloomberg was unable to determine its full scale. The wind-down follows an earlier report by Business Insider indicating that separate negotiations to lease additional Oracle capacity broke down in June this year.Oracle shares dropped roughly 3% following the news. An Oracle spokesperson stated that customer demand for its AI infrastructure remains robust, including for earlier-generation hardware. The non-renewal comes as Microsoft actively reviews more than $80 billion in outside cloud computing commitments across providers including CoreWeave, Nscale, and Nebius Group. Company executives have grown increasingly dissatisfied with escalating expenses and operational delays across these third-party agreements, Bloomberg reported. The tech giant recently passed on an option to expand an Nscale deployment in Texas, coming just weeks after it withdrew from a planned Nscale site in the UK.
Microsoft ‘refuses’ to expand Texas data center deal with Nscale
Microsoft will reportedly not exercise an option to more than double the size of its existing agreement with AI cloud provider Nscale to rent more computing power at a Texas data center. According to a report in The Financial Times, a potential deal extension would have been worth tens of billions of dollars for Nscale. The companies struck a deal in 2025 for Nscale to deploy around 200,000 Nvidia AI chips under an expanded agreement with Microsoft across its data centers in Europe and the US.The development comes weeks after Microsoft pulled out of a deal to anchor Nscale’s flagship data center project in Loughton, Essex, after power connection delays pushed its expected supply date into the 2030s.