Microsoft Winding Down Oracle Deal to Rent AI Cloud Capacity

Microsoft is ending a deal to rent AI computing capacity from Oracle, gradually switching off servers after choosing not to renew the contract. Agreed in 2023, the arrangement was intended to support an AI-powered version of Bing and reflected the severe shortage of computing capacity as demand for AI surged. The deal’s total value is unknown. Microsoft’s rented servers used older-generation Nvidia chips, which no longer met the company’s needs. Oracle, however, says demand remains strong for its AI infrastructure, including older GPUs, and has reported renewing contracts for four-year-old chips at prices 20% above their original rates.

The move fits a broader rethink of Microsoft’s reliance on outside cloud providers. The company has committed more than $80 billion to renting capacity, including from newer “neocloud” firms, but leaders have become concerned about high costs and project delays. Microsoft is scrutinizing data-center plans more closely, abandoning projects it considers risky and reconsidering further deals. Meanwhile, Oracle’s cloud business has grown rapidly, reaching $18 billion in revenue for the year ended May 2026, with major AI contracts helping drive expansion. Yet the scale of its investment in data centers has weighed on cash flow: Oracle’s free cash flow has turned negative, and its shares have fallen by more than half from a June peak.