Microsoft is winding down Oracle deal to rent AI cloud capacity: Report

Microsoft is discontinuing a deal to lease AI cloud services from Oracle, as part of a broader review of multiple cloud partnerships, Bloomberg News revealed on Friday, citing sources familiar with the situation. The shares of both Microsoft and Oracle remained unchanged in late trading, having faced a series of challenges throughout the week due to a recent Democratic victory in the US midterm elections, which may lead to stricter regulation that could hinder the rapid growth of the AI sector.

Microsoft had been gradually reducing its reliance on Oracle's rented computing resources after deciding not to extend the contract, according to the Bloomberg report.

The usefulness of Oracle's rented computing capacity diminished over time, as it could no longer cater to Microsoft's evolving requirements, the Bloomberg report noted, highlighting that the hardware utilized older Nvidia chip generations. Oracle's spokesperson clarified to Reuters that demand for OCI's AI infrastructure, including its earlier-generation GPUs, remains robust.

However, Microsoft did not provide an immediate response to a Reuters inquiry for further information. This report adds to indications that Microsoft is reevaluating its approach to securing computing capacity to maximize the benefits of its substantial AI investments.

On Thursday, Oracle disclosed that it had postponed certain infrastructure deliveries following Microsoft's request for adjustments to its network design, pushing back the projected date for launching more than $4 billion in annualized revenue capacity from the end of the year to January. The delay could extend further to late February.

Earlier in the day, Bloomberg News had reported that Microsoft was implementing stricter controls over selected data center projects managed by neocloud providers, such as IREN, Nebius, and Nscale, amid delays and escalating costs. In 2023, Oracle and Microsoft had signed a multi-year agreement, with Microsoft utilizing OCI's AI infrastructure to enhance the AI-driven version of the Bing search engine; the financial specifics of the deal were undisclosed.