Microsoft Trims Third-Party AI Leases While Azure's 49% Target Faces Its Reckoning

Microsoft has walked away from a rental agreement for AI computing capacity with Oracle after declining to renew the contract, according to Reuters, which cited Bloomberg. The leased capacity no longer matched Microsoft's requirements, and the decision forms part of a wider review of its cloud partnerships.

The company is also passing on an option at Nscale that would have more than doubled its existing contract for a data centre in Texas — a call Reuters reports was actually made several months ago. The current Nscale agreement stays as it is. Bloomberg adds that Microsoft has tightened its oversight of data centre projects involving Nebius, IREN and Nscale amid delays and rising costs, and is weighing whether to sign fresh deals with specialised cloud providers at all.

A quarter of strong headline numbers

On 28 October, Microsoft reported revenue of $92.3 billion for the first quarter of fiscal 2027, up 19% year on year. Operating profit came in at $45.9 billion, a gain of 21%, while GAAP net income climbed 32% to $36.6 billion. Guidance for the current quarter points to revenue of between $96 billion and $97.1 billion.

Cloud revenue reached $63.9 billion, an increase of 30%, and adjusted earnings stood at $4.89 per share on revenue of $92.28 billion, according to media reports. Reuters put free cash flow at $18.6 billion — a base that argues for operational strength provided Microsoft can hold onto it as it expands.

Azure remains the yardstick. Revenue from the cloud platform grew 48% in the first fiscal quarter, and the company expects growth of 49%–50% in the second, Reuters reported. Hitting that acceleration would vindicate the bullish case for the build-out; missing it would leave the investment case resting on profit and cash-flow trends alone.

Protesters, politics and the cost of capital

The growth debate acquired a physical dimension today when demonstrators entered a Microsoft data centre construction site in Amsterdam. Some climbed a crane and set off flares, according to media reports. Microsoft said it respects peaceful protest but does not condone unlawful or unsafe behaviour.

The incident lands on a market already on edge. Reuters reported yesterday on a broad sell-off in AI stocks, with investors fretting over how election outcomes might affect data centre construction, as well as financing costs and the returns on hefty AI spending.

Financing is squarely in focus. Microsoft announced on 29 October the terms of unsecured senior notes totalling $25 billion, split across fixed and floating-rate tranches, with proceeds earmarked for general corporate purposes. Worries about credit costs described by Reuters could weigh on the valuation if investors begin to expect heavier financing burdens or weaker returns on investment.

Lumen pact offers a commercial counterweight

On the growth side of the ledger, Microsoft said on Monday that it is widening its collaboration with Lumen Technologies. The two plan to jointly market AI-ready enterprise networks and align their customer planning, and they are exploring making further Lumen offerings available through Azure and the Microsoft Marketplace. Any additional business would depend on the partnership translating into signed customers.

Meanwhile, the company announced on 26 October a voluntary exit programme for eligible employees at participating teams in the United States, Canada, India and the UK. Media reports put the eligible pool at roughly 60,000 staff, with decisions due in early December.

Shareholders also have a boardroom change to digest. Microsoft said on Wednesday that Emma N. Walmsley will not stand for re-election at the annual meeting on 8 December 2026, following her announced move to become CEO of HP on 4 January 2027.

What the next set of results must prove

The bull case holds as long as Azure delivers the promised acceleration and construction proceeds without major disruption — in which case today's protests may come to look like a contained project risk. The bear case begins where infrastructure resistance genuinely slows the build-out, particularly if Azure's expected pickup fails to materialise at the same time. A combination of disappointing growth and mounting doubts about the economics of expansion would be the most damaging outcome for the stock, stripping the strong operating record of its weight as an argument for lofty expectations. The coming earnings report is where the guidance gets tested.