Microsoft Winds Down Oracle AI Cloud Capacity Deal as Chip Needs Shift
The company chose not to renew a 2023 agreement for Bing search inference as older Nvidia hardware falls out of favor.
Microsoft is phasing out an arrangement to lease artificial intelligence computing capacity from Oracle after deciding against renewing the contract, Bloomberg first reported on Friday, citing people familiar with the matter. The wind-down was subsequently detailed by The Next Web (https://thenextweb.com/news/microsoft-winds-down-oracle-ai-cloud-capacity-deal).
Over recent months, Microsoft has been turning off the rented capacity. The underlying server clusters ran older Nvidia graphics processors that no longer match what Microsoft requires for its operational workloads, according to people familiar with the decision.
The agreement, originally struck in November 2023, paired Oracle Cloud Infrastructure with Microsoft Azure AI infrastructure to run inference models supporting conversational search in Microsoft Bing. While the full financial scale of that multi-year contract was never disclosed, separate negotiations between the two companies to lease additional Oracle capacity fell apart in June, as Business Insider previously reported.
The retrenchment comes as enterprise operators confront the rapid obsolescence cycles of generative AI silicon. Research firm Gartner has warned that aggressive capital spending on AI infrastructure could face sizable write-downs as newer, more efficient hardware families reach data center floors.
Microsoft has committed more than $80 billion to long-term compute arrangements with external cloud and specialized data center providers, including CoreWeave, Nscale, and Nebius. However, company leadership has grown wary of mounting costs and project delays, according to Bloomberg. Microsoft recently declined an option to expand an agreement with Nscale in Texas, following an earlier withdrawal from an Nscale facility in the United Kingdom.
Oracle stated that customer demand for its AI infrastructure remains strong across all tiers, including clusters powered by older processors. Oracle shares fell roughly 3% following the report. Rapid capital outlays for data center expansions have pushed Oracle's free cash flow negative and brought its credit rating to a single notch above speculative grade, with its shares falling more than 50% from a peak in June.
Microsoft declined to comment on the Oracle infrastructure deployment.
Sources
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