• A TD Cowen analyst said that Microsoft had canceled plans for new data center developments.
• The news suggested that the staggering forecasts for data center growth could be overblown.
• Experts say the industry's growth will still be enormous but is now undergoing a reality check.

Microsoft recently appeared to scale back its data center development pipeline, which would be an extraordinary step back after a period of furious growth by the tech giant. But did it really?

The concerns about whether air was coming out of a data center bubble were raised by a TD Cowen analyst, Michael Elias, in a report dated February 21. Elias wrote that Microsoft, one of the largest data center operators in the country, had recently torn up leases for "multiple +100 megawatt deals in multiple markets that were in early/mid-stages of negotiations."

Elias also said the company had let go of more than a gigawatt of preliminary data center commitments it had made and also five longer-term development deals in prime data center markets. The company's decision-making was "tied to Microsoft potentially being in an oversupply position."

Microsoft's pullback sent a shudder through the data center market, which has seen staggering forecasts for growth in the coming years.

For some, however, the news simply reflected a more modest revision of the sector's extraordinary recent projections for growth.

"I can't think of the big five that haven't done this every 12 or 18 months," said one data center development executive, referring to the industry's largest users: Amazon, Meta, Google, Microsoft, and Oracle. The executive did not want to be identified by name because major customers in the industry prize confidentiality.

"This is not new and definitely not the biggest one we've had in the last three years," the executive said, saying that Meta had canceled major data center commitments it had in recent years in order to reset its strategy, including its data center business's customer and technology focus.

After that reevaluation, Meta rebooted its torrid growth, including the recent announcement of a $10 billion data center campus in Louisiana.

A spokeswoman for Meta declined to comment.

Microsoft still has plans for robust growth

Dan Thompson, an analyst at S&P Global who covers the data center industry, said that the magnitude of the data center boom was bound to modulate because the projections included speculative projects and, potentially, the double counting of tenants who may have expressed interest in multiple projects and/or regions for the same requirement.

"Some of these announcements are not going to get built," Thompson said. "I don't see it as a reflection on the data center industry."

Thompson said that there was a need to differentiate between credible growth and the frothiest forecasts for the industry's expansion. He said that S&P plans to reorganize its data center projections this year into buckets that group projects based on their likelihood of coming to fruition.

"We are modifying our reports this year, for every market, basically draw the line in the sand and say, OK, this is the part where we think: that is real," Thompson said.

What is clear, nonetheless, is that a data center boom is afoot across the nation.

S&P Global projects that the industry will grow from about 35.4 gigawatts of capacity today to almost 82 gigawatts by the end of the decade, an 131% increase. There have been even more ambitious projections that more than 90 gigawatts of data centers could be online by 2029.

The development is being undertaken to commercialize and develop artificial intelligence and also cater to society's yawning digital footprint. Data centers provide the computing and storage that power the internet and a host of increasingly vital functions, such as autonomous vehicles, Zoom meetings, and cloud computing.

A spokeswoman for Microsoft suggested in a statement that the company had pumped the brakes on development, while also highlighting the enormous scale of its data center expansion.

"Thanks to the significant investments we have made up to this point, we are well positioned to meet our current and increasing customer demand," the spokeswoman stated. "Last year alone, we added more capacity than any prior year in history."

Microsoft "will continue to grow strongly in all regions," she said, and that the company's plans to "spend over $80B on infrastructure this FY remains on track as we continue to grow at a record pace to meet customer demand."

Elias's report didn't cite specific examples of Microsoft's retrenchment, except for the recent news of its decision to reevaluate a large data center campus it is building in Mount Pleasant, Wisconsin, outside of Milwaukee.

Reached by phone, Elias declined to comment further.

Sean Ryan, a spokesman for the Village of Mount Pleasant, said that Microsoft had "paused in some of its construction work in order to incorporate new data center designs" and that "Village officials have no reason to believe this will affect the overall scope or nature" of the project.