Microsoft to drop rented computing capacity from Oracle

Microsoft is ending an arrangement to rent AI computing power from its rival Oracle, Bloomberg reported. Oracle shares dipped 4% on Friday on the news. The report fed fresh doubts about how long the AI infrastructure boom can continue to sustain itself.

Microsoft has been using less of the rented computing power in recent months and has decided not to renew the deal, Bloomberg reported, citing people familiar with the matter. Neither company has shared how much the deal was worth.

According to the reports, the rented capacity no longer met Microsoft’s needs. Oracle’s hardware used older Nvidia (NVDA) chips, making it less suitable for the AI tasks Microsoft is currently interested in running.

Oracle rejects demand concerns

An Oracle spokesperson said demand for its AI services remains strong, including for older GPUs used to train and run AI models.

Oracle had announced in September that it was renewing contracts for four-year-old GPUs. These GPUs were going for prices 20% higher than initially sold.

This raised a question of whether Microsoft was leaving because of a falling demand for Oracle’s cloud services or simply because it wants newer AI chips.

A 2023 deal made during an AI chip shortage

The deal started in 2023, when Microsoft rented computing power from Oracle to support a new version of Bing with AI features. At the time, there was not enough computing power to meet the growing demand from AI projects.

The deal was seen as unusual back then. Microsoft, one of the world’s biggest cloud providers, was relying on a competitor for extra computing power. However, it was a temporary fix that allowed Microsoft to keep its AI services running for business customers while building more data centers of its own. Once they were ready, the company planned to move the work to its Azure cloud.

Timing lands amid a tech selloff

The news came as tech stocks were already falling. On Thursday, the Nasdaq Composite dropped 5.5%, while the Philadelphia Semiconductor Index fell 12%. This represented its biggest daily loss since March 2020, according to Investing.com.

Investors remain concerned about how much companies are spending on AI and data centers. This concern spills into worries about the rising share prices of companies benefiting from the AI expansion.

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