Insiders have revealed that Microsoft (MSFT) plans to reduce its partner list of neocloud service providers, focusing on a small number of core suppliers while accelerating the construction of its own data centers. This adjustment brings new challenges to the already pressured neocloud service provider sector, which has long been affected by factors such as rising borrowing costs, heavy debt burdens, and expectations of slowed capacity construction. Microsoft previously reached partnerships with multiple neocloud service providers, including CoreWeave (CRWV), Nebius (NBIS), Chronoscale, IREN (IREN), Lambda, Nscale, and Oracle (ORCL), with Oracle also continuing to invest in AI infrastructure construction. Microsoft is currently still in the plan evaluation stage and has not yet finalized which partners to terminate cooperation with. Internally, the company tends to prioritize advancing its own data center layout, while sources indicate that Microsoft will no longer renew relevant agreements with Oracle. A Microsoft spokesperson stated that its infrastructure strategy is based on flexibility and diversified choices, and that it will provide computing power through a combination of its own facilities, leased facilities, and third-party partnerships, while regularly reviewing and adjusting related investments based on customer demand.
In recent periods, stock price volatility among neocloud service providers has intensified, with the market concerned that many providers have taken on excessive debt during rapid capacity expansion. Over the past month, the stock prices of CoreWeave, Nebius, and IREN all nearly halved, with only a slight rebound on Friday. An industry assessment covering 323 similar service providers led industry observers to conclude that a large number of these companies will struggle to continue operating. IREN disclosed in its financial report that it had already handed over data center capacity to Microsoft in August, but due to network equipment upgrades, the infrastructure launch time was delayed to January or February of the following year. IREN’s stock price rose 16% on Friday, with its AI revenue more than doubling quarter over quarter to $200 million. Co-CEO Daniel Roberts believes that there is a disconnect between market trading performance and actual customer demand, and that capital market attention has shifted from order scale to delivery capability, financing channels, and profitability. CoreWeave and Nebius will successively release quarterly results next week.
Microsoft has already reduced cooperation with UK provider Nscale, abandoning its originally planned site in England. A relevant person in charge said the decision was related to Nscale’s ability to obtain electricity, and Microsoft will also no longer renew its cooperation contract in Texas. Nscale submitted a listing application in September, but its subsequent prospectus documents have not been updated, and Microsoft was listed as a major customer in its IPO materials. Microsoft’s large-scale introduction of external cloud service providers began after the launch of ChatGPT in 2022, when GPU demand rose rapidly. Microsoft signed with CoreWeave, a company whose early business came from cryptocurrency mining. Its listing documents show that more than 60% of its revenue in 2024 came from Microsoft. OpenAI’s cloud suppliers are no longer limited to Azure, with Amazon (AMZN), Cerebras, CoreWeave, Google (GOOGL), and Oracle newly added. Microsoft Chief Financial Officer Amy Hood mentioned on the earnings call that some GPU cloud contracts have been deferred to the first half of 2027, which will drag on Azure’s growth. The company’s total capital expenditure and finance leases in the latest quarter reached $45.2 billion, and capital spending will continue to accelerate in the second half of the year. Microsoft stated that regularly reviewing and managing infrastructure projects is a routine operational arrangement, and that the pace of implementing new agreements matches current computing power demand.
Overall, Microsoft’s computing power strategy is shifting from large-scale external procurement to a model centered on self-building with selected partnerships, and this change directly impacts the business expectations of neocloud service providers. The logic of the entire industry is changing. In a high-interest-rate environment, the sustainability of financing, delivery, and profitability will become the key factors determining whether such cloud service providers can survive.
