Microsoft Ends Deal to Rent Cloud Servers from Oracle

Microsoft declined to renew a deal to rent cloud servers from Oracle, according to a person familiar with the situation, winding down an arrangement that the two rival cloud providers struck in 2023.

Microsoft wound down the deal because the servers it was renting from Oracle were equipped with older chips that became less useful over time, according to the person with knowledge of the decision, who said the company was not relying on Oracle for a significant share of its computing power.

Microsoft first started renting server space from Oracle to use as a backup when it ran out of server space to run its own AI applications alongside the servers it rented to customers, The Information reported at the time. Oracle announced the deal later that year, stating that Microsoft would rent its servers to power some AI features in Microsoft’s Bing search engine.

The move comes as Microsoft continues to spend heavily on leasing cloud servers equipped with AI chips from third parties, which it was forced to do in recent years because it couldn’t build its own first-party data centers fast enough to meet demand. Still, the company has shown a willingness to cancel or delay such deals when they don’t meet its expectations; Microsoft in recent months cancelled a data center deal with Nscale and delayed payments to Iren after those two cloud firms faced delays bringing the capacity online.

An Oracle spokesperson said in a statement that “demand for OCI’s AI infrastructure remains strong, including for earlier-generation GPUs” and noted that the company disclosed in September that it has recently renewed contracts for GPU rentals at a 20% premium to the original pricing of the long-term contracts. Bloomberg first reported that Microsoft was cancelling the deal.