Microsoft Winds Down Oracle AI Cloud Rental Over Older Nvidia Hardware, Oracle Falls 4%

Microsoft has been turning off AI computing capacity it rented from Oracle after declining to renew the contract, Bloomberg reported on Friday, citing people familiar with the matter. The people said the capacity had become less useful because it no longer fit Microsoft's specifications: the hardware ran on older-generation Nvidia chips. Bloomberg described the move as part of a broader reassessment of billions of dollars in cloud partnerships. Microsoft declined to comment.

ORCL shares fell 4% on the report. The arrangement, announced in 2023, was meant to secure extra computing power for an AI-assisted version of Bing, and its full value could not be determined. It drew attention at the time because MSFT was renting servers from a major cloud competitor while demand for AI capacity outstripped supply.

Oracle pushed back on the read-through. A spokesperson said demand for its AI infrastructure remains strong, including for earlier-generation GPUs, and the company said in September that it was renewing contracts for four-year-old GPUs at a 20% premium to their original prices. The open question for investors is whether this reflects weaker demand for Oracle's capacity or simply how fast AI hardware ages.

The timing adds pressure. The report landed a day after a selloff in which the Nasdaq Composite fell 5.5% and the Philadelphia Semiconductor Index dropped 12%, its steepest decline since March 2020, on worries about AI infrastructure spending. Watch whether other large customers renew older NVDA-based capacity, and whether Oracle's next update on AI infrastructure demand shows any client attrition.