Microsoft Reportedly Plans to Use Fewer Neocloud Providers as It Builds Its Own Data Centers
People familiar with the plans told CNBC and Bloomberg that Microsoft will narrow its neocloud roster; no decision has been made on which partners stay.
Photo: Coolcaesar / CC BY-SA 4.0 via Wikimedia Commons
Microsoft is planning to rely on fewer third-party "neocloud" providers for AI computing and focus on a handful of key suppliers while it builds out its own data centers, CNBC reported on November 6, citing people familiar with the matter. Bloomberg reported the plans earlier. Microsoft has not yet decided which providers it will stop using, according to the report.
The details
Microsoft has signed about half a dozen neocloud agreements in recent years, with companies including CoreWeave, Nebius, Chronoscale, IREN, Lambda and Nscale. It also works with Oracle, and two people told CNBC that Microsoft chose not to renew a deal with Oracle.
- Microsoft has walked away from an Nscale site in England; Nscale's UK and Ireland CEO Darren Hardman said in October the decision related to access to electricity
- The Financial Times reported Microsoft decided against renewing an Nscale contract in Texas
- Nscale filed to go public in mid-September and has not updated its prospectus, which says it expects Microsoft to be a "significant customer in future periods"
A Microsoft spokesperson said its infrastructure strategy is "built on flexibility and choice," and that the pace of new agreements "reflects what we need today."
Why it matters
On Microsoft's October earnings call, finance chief Amy Hood said some GPU-related cloud contracts had been delayed until the first half of 2027, which affected Azure growth. The company reported $45.2 billion in capital expenditures and finance leases in the quarter and said spending will accelerate in the second half of its fiscal year.
Neocloud operators have felt the shift. CNBC reported that shares of CoreWeave, Nebius and IREN are each down roughly half over the past month, even after a Friday rally. IREN said on November 5 that more than $4 billion in annualized revenue expected this year has slipped to at least January or February, because a customer asked for a network upgrade. Co-CEO Daniel Roberts identified that customer as Microsoft.
Context
Microsoft turned to neoclouds after ChatGPT's 2022 launch, when OpenAI used only Azure. OpenAI's cloud suppliers now include Amazon, Cerebras, CoreWeave, Google and Oracle. CNBC cited an industry review that counted 323 neoclouds, with experts predicting many will not survive. CoreWeave and Nebius are due to report quarterly results next week.
