Microsoft Stops Renting Old Oracle Chips, and Oracle Stock Recovers

Microsoft made news in the same direction two days running. On Thursday, Bloomberg reported that the company had started policing the data center capacity it rents from outside providers more tightly. On Friday, it was Oracle's turn.

According to the report, Microsoft did not renew the AI capacity rental agreement it signed with Oracle in 2023. It has been switching that capacity off piece by piece in recent months. People familiar with the matter said the older-generation Nvidia chips no longer meet Microsoft's specifications.

The deal supported AI features in Bing. Bloomberg could not determine the contract's size, and Microsoft declined to comment.

Oracle Says Its Older Chips Are Still in Demand

Oracle's reply to Reuters was brief. "Demand for OCI's (Oracle Cloud Infrastructure) AI infrastructure remains strong, including for earlier-generation GPUs."

The company had made the case with numbers in September. According to 24/7 Wall St, GPUs coming up for renewal were renewed or rented to new customers at a 20% premium. Oracle said most of those chips were four years old or older, and capacity utilization stood at 97.9%.

The news sounded like Oracle losing a customer. The real question was who the second tenant for the vacated chips would be.

The Next Tenant Sets the Value of an Old Chip

A rented chip starts an expense schedule on the day it is bought. That schedule does not change when the customer does; only the revenue side moves.

The math shows that the vacancy period matters more than the premium. If Oracle holds its 97.9% utilization, Microsoft's exit is just a change of tenant. If the vacated capacity stays empty for months, the same chip books a loss. For how depreciation hits profit: Cash Flow.

Rented-Capacity Stocks Fell on Thursday

Thursday's report painted a broader picture. According to Bloomberg, Microsoft is monitoring projects at Nebius, IREN and Nscale more closely and stepping back from those it deems risky. It cancelled a roughly $3B deal with Nscale in the UK because of grid power delays.

Microsoft also walked away from a letter of intent to lease 1.35 gigawatts in West Virginia. IREN pushed back some deliveries after Microsoft requested changes to the network design. Its target for bringing more than $4B of annualized revenue capacity online moved to January 31 and could slip to the end of February.

Microsoft said its approach is built on flexibility and optionality. The company said it monitors partners' delivery and adjusts plans when circumstances change.

Shares Recovered on Friday

Oracle fell as low as $109.21 on Friday, 5.2% below Thursday's close and its lowest level in a year. By the end of the session the stock had closed up 0.74% at $116.01. It remains 53% below its June 1 peak of $248.15.

The same day IREN rose 20%, Nebius 7.6% and CoreWeave 6.1%, while Microsoft slipped 1%. The rebound was not Oracle's alone: the Nasdaq also gained 1.09%. Sources do not tie the recovery to a company-specific cause.

The chart only provides a frame; last month's decline reflects financing, election and leasing news combined. For comparison, the Nasdaq 100:

What It Means for Investors

• The market did not price the two reports as a demand collapse: Oracle finished the day higher, and rented-capacity stocks won back part of Thursday's losses.
• The pressure is greatest on providers with few customers: for CoreWeave, Nebius and IREN, a single Microsoft decision can shift the revenue calendar by months.
• CoreWeave's backlog and delivery dates on November 10 will be the first numerical gauge of Microsoft's pullback; Oracle's earnings are expected in December.
• The risk to this reading is Oracle reporting in December that utilization has fallen clearly below 97.9%.

Sources: Details of the Microsoft-Oracle deal come from Bloomberg's November 6 report. Reuters and The Next Web relayed the report. Oracle's September statements and share prices are from 24/7 Wall St. Details on rented-capacity providers rely on Reuters' relay of Bloomberg's November 5 report. Friday's index and stock moves were checked against StockTitan's market notes. The rent figure and depreciation period in the example are hypothetical.