Wall Street’s sensitivity to AI spending appears to have tech firms coming and going as Microsoft and Alibaba shares reacted to separate developments in their AI investment strategies.
While Microsoft’s decision to scale back some data center leases prompted debate over its AI infrastructure strategy, Alibaba’s multibillion-dollar commitment to AI and cloud computing raised investor concerns about profitability.
Microsoft has canceled leases with at least two private data center operators in the US, according to a research note from TD Cowen analysts. The firm suggested the move could indicate a potential oversupply of data center capacity – affirming investors' concerns over capital expenditures on AI – while also noting that Microsoft had reallocated a significant portion of its international spending to the US.
“Our checks indicate that in some situations, Microsoft is using facility/power delays as a justification for the termination,” the analysts wrote, according to reporting by Barron's. The commentary compared the appraoch to a similar bargaining tack Meta Platforms used in 2023.
However, Jefferies analysts pushed back against speculation that the cancellations signal a dimming in Microsoft’s AI hopes. As per Barron's, they stated in a note to clients that Microsoft executives were “strongly refuting” any change in strategy, instead describing the company as “always tweaking their forecasting of how tight certain regions will be and where investment needs to be prioritized.”
Mizuho analysts offered a different perspective, suggesting that Microsoft may be walking away from potential leases rather than terminating existing agreements. They noted that Microsoft’s leasing activity had accelerated in recent years compared to its peers, and the recent news of pullbacks could simply be a correction from earlier exuberance.
“The debate on whether this is a course correction or a harbinger of more to come is not a surprise,” they wrote, adding that a readjustment “may not be an unreasonable conclusion.”
Meanwhile, Alibaba’s stock fell after the company declaring plans to invest $52.4 billion in AI and cloud computing over the next three years. The company’s American depositary receipts dropped as much as 10 percent on Monday, marking their steepest decline since October 2022.
The spending plan, outlined in an official company blog post, represents a sharp increase in Alibaba’s investment in AI and cloud computing—surpassing the company’s spending in those areas over the past decade. Alibaba framed the move as a commitment to “AI-driven growth” and its role as a “leading global cloud provider.”
Despite recent strength in Alibaba’s stock, which has risen 70 percent this year, investors reacted negatively to the announcement. Analysts pointed to concerns that the heavy capital expenditures could pressure Alibaba’s profitability.
Similar worries have weighed on US tech stocks in recent weeks, with Amazon.com and Alphabet seeing declines after issuing higher-than-expected capital spending guidance. Those concerns were aggravated with the arrival of DeepSeek, a Chinese startup whose AI models were reportedly able to go toe-to-toe with the world's best chatbots using just a fraction of the power and energy costs they use.
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