Key Takeaways
- Microsoft is winding down a 2023 deal to rent AI computing from Oracle because its older Nvidia chips no longer fit Microsoft’s specifications, Bloomberg reported.
- Oracle says GPUs renewed last quarter, mostly four years or older, went at a 20% premium, and IREN just recontracted older H100s at double the price.
- Oracle’s debt, leases included, hit $169.1 billion, and analysts expect $61.7 billion of cash burn across fiscal 2027 and 2028.
- Microsoft’s exit looks like a call about its own workloads. The bigger risk is Oracle’s balance sheet.
Microsoft (MSFT) is turning off AI computing it rented from Oracle (ORCL). The reported reason is the age of the chips.
Bloomberg reported on Nov. 6 that Microsoft declined to renew a 2023 arrangement that supported its AI-powered Bing and has been shutting it down. The servers ran older Nvidia (NVDA) chips that no longer fit Microsoft’s specifications, people familiar with the matter said. Oracle stock hit a 52-week low of $109.21 that day before closing slightly higher.
An Oracle spokesperson said demand for its AI infrastructure remains strong, including for earlier-generation GPUs. Co-CEO Clay Magouyrk made the case on Oracle’s first-quarter fiscal 2027 earnings call on Sept. 10: “Of all the GPUs that came up for renewal in Q1, that capacity was renewed or resold at a 20% premium to prior contracts. The majority of those GPUs are 4 years or older.”
Oracle Needs Its Old Chips to Keep Paying
Oracle’s free cash flow has swung deep into the red, and analysts don’t expect a positive full year until fiscal 2029.
At its Oct. 28 Investor Day, Oracle said free cash flow turns positive in the second half of fiscal 2028, and it targets more than $30 billion in fiscal 2029, against the $17.5 billion analysts expect.
Capital spending dug the hole, rising from $4.5 billion in fiscal 2022 to $55.7 billion in fiscal 2026.
Oracle guided to $90 billion to $95 billion for fiscal 2027, with customers expected to repay $20 billion to $25 billion of it. It depreciates servers over six years, so today’s GPUs must keep renting long after Nvidia ships newer ones. Magouyrk sees “a long useful life with increasing value” for that capacity.
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No Room Left Under Oracle’s Cap
Oracle’s total debt, leases included, more than doubled from fiscal 2022 to fiscal 2026 and hit $169.1 billion by Aug. 31.
On Nov. 2, Oracle priced $10 billion of stock and $10 billion of bonds, with both offerings closing Nov. 4. That used the full $20 billion commitment for additional capital raises through fiscal 2030 announced five days earlier, excluding refinancing of existing debt. S&P rates Oracle BBB-, one notch above junk. If older chips earn less than Oracle expects, the shortfall hits cash flow that’s already negative.
Microsoft Can Afford to Be Picky
Older chips still find buyers. IREN co-CEO Daniel Roberts said on its Nov. 5 call: “older generation H100s, we just recontracted at double the original contract price.”
Microsoft still rents, too. Roberts said IREN handed its first Horizon data center to Microsoft, which then asked for a network upgrade for the latest frontier models. Oracle’s own GPU utilization was 97.9% last quarter.
The risk is that other customers follow as newer chips get easier to find. OpenAI’s leaders discussed whether to reset next year’s data center capacity expectations after the Nov. 3 election, the Wall Street Journal reported, though no decision was reported.
What Microsoft’s Exit Means for Oracle Stock
A 20% premium at Oracle and double the price at IREN tell me older Nvidia chips still earn well, and Microsoft is choosing for its own workloads. The balance sheet worries me more. Oracle burned $23.7 billion of free cash flow in fiscal 2026, and analysts expect $34.7 billion more in fiscal 2027. Oracle’s second-quarter report, expected in mid-December, should show whether renewal pricing held after Microsoft left.
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