TradingKey - Shares of Oracle (ORCL) tumbled. According to people familiar with the matter, Microsoft (MSFT) is winding down an arrangement to rent AI computing capacity from Oracle, part of a broader reevaluation of their multi-billion-dollar cloud partnership.
Following the news, Oracle shares fell more than 4% at one point to their lowest level since March 2024. As of press time, the decline narrowed to 2.3%, trading at $112.51.
Oracle Stock Chart, Source: TradingView
People familiar with the matter said that in recent months, after declining to renew the contract, Microsoft has begun gradually discontinuing the use of computing capacity leased from Oracle. The hardware uses older-generation chips from Nvidia (NVDA) and, as Microsoft's requirements have evolved, no longer meets its specifications.
The previously disclosed AI computing collaboration between the two parties includes a multi-year agreement. Oracle announced in November 2023 that Microsoft would use Oracle Cloud Infrastructure (OCI) in conjunction with its own Azure platform to provide AI inference services for Bing conversational search, including analyzing search results and generating responses. This enabled Oracle to absorb computing demand beyond Microsoft's own infrastructure.
Microsoft's decision not to renew means Oracle needs to find new users for the capacity. For Oracle, the key lies in whether replacement customers can step in on time. If the released computing capacity can be quickly subleased while maintaining favorable pricing, the revenue impact of Microsoft's exit is expected to be contained. However, if the hardware sits idle for an extended period, data center and facility costs must still be borne, potentially weighing on cloud margins and returns on investment. The non-renewal by a major client has thus deepened market scrutiny of the economic lifespan and long-term cash returns of AI hardware.
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