Microsoft has abandoned data center projects set to use 2 gigawatts of electricity in the U.S. and Europe in the last six months due to an oversupply relative to its current demand forecast, TD Cowen analysts said on Wednesday.
The tech giant's withdrawal from new capacity leasing was largely led by the decision not to support additional training workloads from ChatGPT maker OpenAI, the analysts led by Michael Elias said in a note.
Let’s dive into the potential sscenarios and related options strategies.
1. Microsoft's Pullback Creates Opportunities for Alphabet and Meta
TD Cowen's supply chain checks indicate that Microsoft's pullback has led to Alphabet's Google stepping in to backfill the capacity in international markets, while Meta Platforms does the same in the U.S.
Therefore, it’s reasonable to trade Alphabet and Meta using spread options strategies, as they require less capital than the underlying stocks while targeting potential breakouts.
Microsoft on Wednesday said, while it may "strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions". It added its plans to spend $80 billion on AI infrastructure this fiscal year are on track.
The TD Cowen analysts said in February that Microsoft had scrapped leases totaling "a couple of hundred megawatts" of capacity with at least two private data center operators.
Microsoft and Meta executives defended their massive AI spending after the DeepSeek reveal in January, saying it was crucial to staying competitive in the new field. Alphabet has said it will spend $75 billion on its AI buildout this year, 29% more than Wall Street expected, while Meta has pledged as much as $65 billion.
Option Strategy: Bull Call Spread
Alphabet
Stock Price: $165.06 | Support: $163.72 | Resistance: $190.82 | IV: 40.99%
Buy April 25, 2025 $165 Call
Sell April 25, 2025 $175 Call
Net Debit: $4.05×100
Max Profit: $595.5
Breakeven: $169.04
Rationale: Capitalizes on potential rebound toward resistance ($190.82). High open interest at $165/$170 strikes ensures liquidity.
Source: Tiger Trade App
Meta
Stock Price: $610.98 | Support: $600.66 | Resistance: $612.66 | IV: 46.87%
Buy April 25, 2025 $610 Call
Sell April 25, 2025 $640 Call
Net Debit: $13.4×100
Max Profit: $1680
Max Loss: -$1320
Breakeven: $623.20
Rationale: Capitalizes on potential rebound toward resistance with reduced upfront cost. High open interest at $605/$615 strikes provides liquidity.
Source: Tiger Trade App
2. Oracle Stock Looks Cheap to Value Investors
On March 7 Oracle reported that it generated $5.8 billion in free cash flow (FCF) over the last 12 months (LTM) as of its fiscal Q3 ended Feb. 28. That was well below the fiscal Q2 LTM FCF of $9.54 billion and the Q1 LTM FCF of $11.5 billion.
The main reason for this is that Oracle is spending significantly more on capital expenditures (capex) due to its AI investments. That is also seen in the table above.
Larry Ellison, Chairman and CTO, said the company will double its data center capacity this calendar year. He said that customer demand is at record levels. That is what is driving their capex spending.
Option Strategy: Sell OTM Put
Oracle’s implied volatility is at 22.67% now, a relative low level. That might mean it's a good time to set a buy-in target price selling short out-of-the-money (OTM) put options in near-term expiry periods. That way an investor can get paid while waiting for the stock to hit that price.
For example, look at the April 25 expiration period, 32 days to expiry (DTE). It shows that the $140.00 put option strike price contract has a premium of $2.30 per put contract.
Source: Tiger Trade App
