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An analyst report from TD Cowen on data centers and Microsoft raised fears about the sustainability of the artificial intelligence trade and may have had a hand in Friday's big market sell-off. "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.," stated the Friday note by Michael Elias, a data centers analyst.
The analyst said SOQs, or statement of qualifications, are typically the pre-cursor to signing a data center lease. "MWs" are megawatts. "When coupled with our prior channel checks, it points to a potential oversupply position for MSFT," Elias continued.
The report is causing buzz on Wall Street with traders passing it around over the weekend. "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," stated a note from the trading floor of Jefferies. The report "was likely one of the drivers for the tech sector selloff.
" On Friday, the Dow Jones Industrial Average tumbled 700 points in the worst sell-off of 2025 so far. Shares of Nvidia , the most popular AI-linked trade, were down 4%, as was Broadcom 's stock. Data center stocks Digital Realty Trust and Equinix fell 4% and 2% respectively.
Super Micro Computers lost 5%. Energy stock linked to AI growth, Vistra Corp , tumbled nearly 8% on Friday. The selling in the tech sector picked up in the afternoon Friday as news of the TD report spread.
Most of these shares were stable or higher in premarket trading Monday. The TD report said that Microsoft terminated some leases using "facility/power delays as justification." CNBC reached out to Microsoft for comment, but has not yet receive a response.
Jefferies' trading desk said that Microsoft investor relations "strongly refuted" to the firm any change to its data center strategy. Microsoft because of its strategic partnership with OpenAI is considered one of the key drivers of the AI trade, along with Meta. Wall Street is closely watching their capital expenditure plans for signals as to whether the AI trade will continue.
After China's DeepSeek emerged earlier this year with a competitive AI model supposedly developed for much cheaper than OpenAI and others, it caused a big sell-off in AI-related stocks by raising concerns that perhaps all the datacenter capacity being built out would not be needed. As Microsoft and other mega-tech companies reported earnings in the past month, they reiterated or raised their plans for AI spending , assuaging some of those fears. The TD report has seemed to rekindle some of those worries once again.
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