Microsoft is shrinking the roster of neocloud partners it rents artificial intelligence capacity from, focusing on a few key suppliers while it prioritizes its own data centers, according to people familiar with the matter who spoke to CNBC. The company is still evaluating its external agreements and has not decided which providers it will stop using, the sources said. Bloomberg reported on the plans earlier, and two people said Microsoft has also opted not to renew a deal with Oracle.
Neoclouds are specialized cloud providers that rent out graphics processing units, the chips that power AI workloads. Microsoft turned to them in force after the launch of ChatGPT in 2022 created a surge in GPU demand that its own facilities could not meet. In recent years it has signed capacity deals with CoreWeave, Nebius, Chronoscale, IREN, Lambda and Nscale, alongside its work with Oracle, which is itself pouring money into AI infrastructure.
A Microsoft spokesperson said its infrastructure strategy is "built on flexibility and choice," combining Microsoft-owned data centers, leased facilities and strategic partnerships, and that it regularly reviews those investments against demand and delivery.
Delivery is the immediate pressure. On Microsoft's fiscal first-quarter earnings call in October, Chief Financial Officer Amy Hood said some cloud contracts involving GPUs had been delayed until the first half of 2027, weighing on Azure growth. Microsoft reported 45.2 billion dollars in capital expenditures and finance leases for the quarter and said spending will accelerate in the second half of the fiscal year.
The delays are visible at partner sites. IREN said on Thursday that it handed over data center capacity to Microsoft in August, but a networking equipment upgrade requested by Microsoft will push that infrastructure online to January or February instead of this year. IREN is building four data centers in Texas under a contract with Microsoft worth about 9.7 billion dollars. Microsoft has already walked away from an Nscale site it had intended to use in England, a decision its United Kingdom and Ireland chief executive, Darren Hardman, tied in October to Nscale's ability to get access to electricity. The Financial Times reported this week that Microsoft also decided against renewing a contract with Nscale in Texas.
The shift lands on a sector already under strain. Shares of CoreWeave, Nebius and IREN are each down by roughly half over the past month, even after rallying on Friday, as rising rates sharpen questions about debt taken on to buy chips and build facilities. A recent industry review counted 323 neoclouds, and experts predict many will not survive. When CoreWeave went public last year, it disclosed that Microsoft generated 62 percent of its 2024 revenue.
IREN co-chief executive Daniel Roberts told CNBC that there is a "disconnect between what we're seeing in public market and what we're seeing at the customer level," after IREN shares rose 16 percent on Friday on AI revenue that more than doubled to 200 million dollars. He also acknowledged the new test facing the sector: "Capital markets have become more selective in the last few weeks, and the questions have undoubtedly moved from how big the contract is to whether it can be delivered, financed, and run at a profit."
For enterprise IT leaders, the stakes go beyond any single provider. Research firm Currence estimates that 30 to 50 percent of planned data center capacity expected this year could slip into 2027 or later because of electricity constraints and building delays. CoreWeave and Nebius report results next week, and their delivery updates will test whether Microsoft's narrower roster becomes a broader consolidation.