China Fund Reporter Taylor
Hello everyone, a brief focus on an AI news that once scared the market.
On November 7, there were reports that Microsoft is gradually terminating a partnership that involved leasing artificial intelligence computing resources from Oracle. This is part of Microsoft's reevaluation of its multibillion-dollar cloud computing partnerships.
It has been disclosed that in the past few months, after refusing to renew the contract, Microsoft has begun to gradually close down the computing resources previously rented from Oracle.
Relevant people stated that as time goes by, the computing resources leased by Microsoft have gradually lost their practical value, as these resources can no longer meet Microsoft's current technical specifications; the hardware used by Oracle is equipped with last-generation NVIDIA chips.
In response, Oracle stated that the company's demand for artificial intelligence infrastructure remains strong, which includes last-generation graphics processors. Oracle had stated in September this year that the company is renewing a contract for GPU servers that have been in use for four years at a premium of 20% over the original contract price.
After the news broke, Oracle's stock price plummeted overnight, dropping about 3% intraday, and staged a deep "V" recovery by the close.
According to the cooperation arrangement announced by both parties in 2023, Oracle agreed to provide Microsoft with server access to support the computational needs for Microsoft's new generation of AI-assisted Bing search engine. The complete scale of this transaction remains undetermined at this time.
As the world's largest software company, Microsoft has also driven the so-called "Neocloud" industry craze. The company has signed large-scale contracts with emerging cloud computing companies like CoreWeave, Nscale, and Nebius to lease computing resources, enhancing its artificial intelligence business capabilities.
However, Microsoft is now reevaluating this strategy. Some key management personnel within Microsoft have expressed dissatisfaction with these emerging cloud service providers, primarily due to high costs and project delivery delays.
Earlier reports indicated that just as Microsoft decided not to renew its contract with Oracle, the company also tightened its oversight of other data center projects, withdrawing from some that are considered high risk, and is internally discussing whether to sign new agreements with emerging cloud computing partners.
Since 2023, Oracle's cloud computing business has rapidly expanded, primarily driven by large contracts in the artificial intelligence sector, with clients including OpenAI and Meta.
As of the fiscal year ending in May 2026, Oracle's cloud computing business achieved revenue of $18 billion.
As Oracle continues to develop data centers and expand its cloud computing business, the company was initially seen by the market as a significant beneficiary of the artificial intelligence wave. However, recently, investors have begun to worry about Oracle's massive capital expenditures. Huge investments in infrastructure have led to the company’s free cash flow turning negative.
Since hitting a year-to-date high of $248.15 on June 1 of this year, Oracle's stock price has dropped by more than half.
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