Bloomberg reported on Friday 6 November that Microsoft’s withdrawal from Oracle’s AI computing is linked to a wider review of its cloud partnerships, which are worth billions of dollars. The report relies on anonymous sources, and Microsoft declined to comment.

Older chips were no longer enough

Oracle announced the contract in 2023. Under it, Oracle sold Microsoft access to its servers, which were to power a new AI-assisted version of the Bing search engine. Bloomberg could not establish the contract’s total value.

Over time the rented computing became less useful to Microsoft because it no longer met the company’s requirements, the sources said. Oracle’s hardware used older-generation Nvidia chips, the sources added.

An Oracle spokesperson said demand for the company’s AI infrastructure remains strong, including for older-generation GPUs, or graphics processing units. Oracle said in September that it was renewing contracts for four-year-old GPUs at a 20 per cent premium to the original price, Bloomberg reported.

The Next Web (TNW) pointed to a warning from the analyst firm Gartner: much of the money spent on AI infrastructure may have to be written down as newer chips reach the market. Citing Business Insider, TNW also reported that separate talks on renting additional capacity from Oracle collapsed in June.

Microsoft is also reassessing other leases

According to Bloomberg, Microsoft has committed more than $80 billion to renting capacity from other cloud companies such as CoreWeave, Nscale and Nebius. These are known as neoclouds: newer cloud companies that rent out AI computing. Microsoft executives have grown frustrated with these companies’ high costs and delays, Bloomberg said.

Microsoft decided this week not to expand its data centre deal with Nscale in Texas, Seeking Alpha and TNW reported. Seeking Alpha said the expansion would have been worth tens of billions of dollars to Nscale. A few weeks earlier, Microsoft had pulled out of an Nscale site in Britain, TNW reported.

The cloud company IREN said on Thursday that it had postponed some of its deliveries because Microsoft asked for changes to the network design, Reuters reported.

Oracle’s finances are already under pressure

Heavy investment has turned Oracle’s free cash flow negative, Bloomberg reported. The shares have lost more than half their value since hitting this year’s high of $248.15 on 1 June. TNW said Oracle’s credit rating is now just one notch above junk.

Reports of Friday’s share price reaction differ. TNW said Oracle’s shares fell about 3 per cent, while one version of the Reuters report put the fall at nearly 3 per cent. Another version of the Reuters report said Oracle and Microsoft shares were unchanged in afternoon trading.