Microsoft winds down Oracle AI-compute rental as it rethinks cloud bets

What happened

Microsoft has been phasing out a setup that let it rent AI computing from Oracle, an arrangement unveiled in 2023 to support a new AI-assisted version of Bing. In recent months, the company has been turning off that capacity after opting against renewing the contract, according to people with knowledge of the situation who asked not to be identified.

The total scope of the deal was not clear. Microsoft declined to comment.

Why Microsoft pulled back

The rented capacity became less useful over time because it no longer lined up with Microsoft's technical requirements, the people said, adding that Oracle's systems relied on older Nvidia chips. Microsoft's readiness back then to lease servers from a direct competitor underscored how scarce AI processing power was at the outset of this boom.

That choice also sat inside a much larger rethink of cloud spending. As it declined to extend the Oracle arrangement, Microsoft put stricter controls on other data center efforts, pulled out of projects it deemed too risky, and reconsidered entering further neocloud agreements, according to Bloomberg. In June, Business Insider said discussions over another Oracle arrangement that would have shifted some Microsoft workloads onto Oracle's cloud collapsed.

When firms change technology partners, investors can reassess where advantage may lie. We're hosting our first ever investor livestream on 11/17 to show you how to use ChatGPT and Claude to invest like a pro, hosted by Briefs Finance CEO Jaspreet Singh. Save your seat.

Oracle's trajectory and investor takeaways

Oracle says demand for its AI infrastructure remains robust, including for earlier-generation graphics processing units, and in September it renewed contracts for GPUs that are four years old at rates that were 20% higher than the original deal price. Its cloud business has grown quickly since 2023 on the back of sizable AI contracts with OpenAI and Meta Platforms Inc., with revenue hitting $18 billion for the 12 months through May 2026.

Investors are weighing that growth against heavy capital spending that has pushed free cash flow below zero. Oracle shares have fallen more than 50% from this year's high of $248.15 on June 1, and on the day of this report the stock dipped about 3%, erasing earlier gains. The bottom line: for portfolios exposed to cloud and AI infrastructure, contract mix, chip generations and capex are driving both revenue growth and stock swings.

Keeping an eye on shifting infrastructure choices helps investors spot future edge. On 11/17, our CEO Jaspreet Singh goes live for our first ever investor livestream on how to use ChatGPT and Claude to invest like a pro. Register to join him.