Microsoft Winding Down Oracle Deal to Rent AI Cloud Capacity

Microsoft Corp. is winding down an arrangement to rent AI computing from Oracle Corp., part of a larger reassessment of billions of dollars in cloud partnerships.

In recent months, Microsoft has been turning off rented computing capacity from Oracle after declining to renew the contract, according to people familiar with the matter.

Over time, the computing Microsoft was renting became less useful because it no longer fit the company’s specifications, said the people, who requested anonymity to discuss a private matter. The Oracle hardware used older-generation Nvidia Corp. chips, the people said.

An Oracle spokesperson said demand for the company’s AI infrastructure remains strong, including for earlier-generation graphics processing units. Oracle said in September that it was renewing contracts for four-year-old GPUs at a 20% premium to the original deal price. Microsoft declined to comment.

Oracle shares dipped about 3%, erasing earlier gains.

Under the arrangement, announced in 2023, Oracle agreed to sell Microsoft access to servers that would power a new AI-assisted version of the Bing search engine. The full size of the deal couldn’t be determined.

The fact that Microsoft was prepared to rent servers from a major rival was seen as an early indication of the massive shortage of processing power that has come to define the AI era.

The world’s largest software maker helped usher in a “neocloud” boom by signing massive contracts with upstart cloud businesses like CoreWeave, Nscale and Nebius. In all, Microsoft committed more than $80 billion to rent capacity from other cloud companies to bolster its own AI efforts.

Read More: Microsoft Sours on Neoclouds Amid Data Center Delays, Costs

But Microsoft has been re-thinking its strategy. Key leaders at the company have grown frustrated with the neocloud providers over high costs and delays. Around the time that Microsoft didn’t renew this Oracle deal, it also tightened oversight of other data center projects, stepped away from ones it deems risky and debated internally whether to ink new neocloud deals, Bloomberg previously reported.

In June, Business Insider reported that the companies had been in talks about another deal to move some Microsoft workloads to Oracle’s cloud, but the discussions fell apart.

Oracle’s cloud businesses has expanded rapidly since 2023, fueled by big AI contracts with companies like OpenAI and Meta Platforms Inc. For the year that ended in May 2026, Oracle’s cloud business posted $18 billion in revenue.

With Oracle developing data centers and expanding its cloud business, the company was initially seen as a major beneficiary of the AI boom. But investors have recently become concerned about heavy capital spending that has turned Oracle’s free cash flow negative. The shares have lost more than half their value since hitting a high this year of $248.15 on June 1.