Microsoft neocloud review squeezes AI cloud landlords

The biggest customer of the AI rental boom is rethinking how much capacity it rents. A Microsoft neocloud review is under way that could shrink the number of specialist GPU cloud providers the company works with, CNBC reported on November 6, citing people familiar with the matter.

What happened

Microsoft has signed deals in recent years with CoreWeave, Nebius, Chronoscale, IREN, Lambda and Nscale. Two sources told CNBC it is still evaluating which partners to drop and wants to prioritize its own data center footprint, while two people said it chose not to renew an arrangement with Oracle. Bloomberg reported the plans first. CNBC added that a recent industry review counted 323 neoclouds, and experts expect many of them not to survive.

Reuters, summarizing Bloomberg's reporting a day earlier, said Microsoft had tightened oversight of projects from Nebius, IREN and Nscale, was stepping away from those it considered risky and was debating internally whether to sign new neocloud contracts at all. It will not exercise an option to more than double its agreement with Nscale at a Texas site, and had already walked away from anchoring Nscale's flagship campus in Loughton, England, after power connection delays.

A Microsoft spokesperson said its approach is "built on flexibility and choice" and that investments are reviewed against customer demand.

Why it matters

Neoclouds rely on a handful of hyperscale tenants to service heavy debt. CoreWeave said in its listing documents that 62% of its 2024 revenue came from Microsoft, so a Microsoft neocloud review goes to the core of their business models. CoreWeave, Nebius and IREN have each lost about half their market value in a month, CNBC reported, and on November 5 Nebius fell about 14%, IREN about 17% and CoreWeave about 10%, according to Reuters.

The move does not signal lower spending overall. Microsoft reported $45.2 billion of capital expenditure and finance leases last quarter and expects spending to accelerate, as covered in our report on Azure growth and capex. IREN, which reported AI cloud revenue of $200 million this week, said Microsoft asked for a network upgrade that pushes some capacity into January or February. Microsoft finance chief Amy Hood said in October that some GPU cloud contracts had slipped into the first half of 2027, weighing on Azure growth.

What's next

CoreWeave and Nebius report quarterly results next week, giving investors the first chance to hear how exposed their backlogs are. Any named contract losses would sharpen the debate over the sector's leverage. Texas adds another variable: governor-elect Gina Hinojosa has said she would halt new data center projects until lawmakers write rules for the industry, Reuters reported.

The outcome of the Microsoft neocloud review will also inform lenders financing new GPU campuses. CNBC's report carries Microsoft's full statement.