An analyst report from TD Cowen on data centers and Microsoft raised concerns about the sustainability of the artificial intelligence trade, potentially contributing to Friday’s significant market sell-off. According to Michael Elias, a data centers analyst, “Our channel checks indicate that MSFT has 1) cancelled leases in the U.S. totaling ‘a couple of hundred MWs’ with at least two private data center operators, 2) has pulled back on the conversion of SOQ’s to leases, and 3) has re-allocated a considerable portion of its international spend to the U.S.” SOQs, or statements of qualifications, typically precede the signing of data center leases. “MWs” refer to megawatts. Elias added, “When coupled with our prior channel checks, it points to a potential oversupply position for MSFT.” The report gained significant attention on Wall Street over the weekend, with traders sharing it widely. A note from Jefferies’ trading floor stated, “Understandably, many investors are worried about what this means — particularly if this is an early sign that AI demand is plateauing and that we are no longer in compute shortage.” The report was likely one of the factors behind the tech sector selloff. On Friday, the Dow Jones Industrial Average dropped 700 points, marking the worst sell-off of 2025 so far. Nvidia’s shares, closely linked to AI, fell by 4%, while Broadcom’s stock also declined by 4%. Data center companies Digital Realty Trust and Equinix saw their shares drop by 4% and 2%, respectively. Super Micro Computers fell by 5%, and Vistra Corp, an energy stock tied to AI growth, lost nearly 8%. The selling intensified in the tech sector Friday afternoon as news of the TD report spread. Most of these shares stabilized or rose in premarket trading Monday. The TD report noted that Microsoft terminated some leases using “facility/power delays as justification.” CNBC reached out to Microsoft for comment but has not yet received a response. Jefferies’ trading desk reported that Microsoft investor relations “strongly refuted” any change to its data center strategy. Microsoft, due to its partnership with OpenAI, is considered a key driver of the artificial intelligence trade, alongside Meta. Wall Street is closely monitoring their capital expenditure plans for signals regarding the future of the AI trade. Earlier this year, China’s DeepSeek introduced a competitive AI model reportedly developed for much cheaper than OpenAI’s, causing a sell-off in AI-related stocks amid concerns about potential oversupply of data center capacity. In the past month, as Microsoft and other major tech companies reported earnings, they reiterated or increased their AI spending plans, alleviating some fears. The TD report appears to have reignited some of those concerns. — news from CNBC
