Microsoft to trim neocloud partners, ends Oracle deal

Microsoft's move to consolidate its neocloud relationships comes after a period of rapid expansion. Following the launch of ChatGPT in 2022, demand for GPUs surged, and Microsoft signed up providers like CoreWeave, which was then a privately held startup with roots in cryptocurrency mining. When CoreWeave went public last year, it said 62% of its 2024 revenue came from Microsoft. Now, Microsoft is in the evaluation stage and hasn't decided which neoclouds it will stop using, according to two sources. It has already opted not to renew a deal with Oracle and scaled back work with Nscale, walking away from a site in England due to Nscale's ability to get access to electricity, and deciding against renewing a contract in Texas, as reported by the Financial Times.

The neocloud sector has been turbulent on Wall Street recently, with rising interest rates adding to fears that many companies have become overly reliant on debt. IREN co-CEO Daniel Roberts told CNBC there's a disconnect between public markets and customer demand, but acknowledged that capital markets have become more selective. Microsoft's own capital expenditures and finance leases were $45.2 billion in the latest quarter, and the company said capex spending will accelerate in the second half of the fiscal year. Microsoft finance chief Amy Hood noted that some cloud contracts involving GPUs were delayed until the first half of 2027, affecting Azure cloud growth.