Microsoft is ending an arrangement to rent AI computing power from rival Oracle, Bloomberg reported. Oracle shares dipped 4% on Friday on the news, and the report fed fresh doubts about how long the AI infrastructure boom can continue to sustain itself.

Microsoft has been using less of the rented computing power in recent months and has decided not to renew the deal, Bloomberg reported, citing people familiar with the matter. Neither company has disclosed how much the arrangement was worth.

According to the report, the rented capacity no longer met Microsoft's needs. Oracle's hardware relies on older Nvidia (NVDA) chips, making it less suitable for the AI tasks Microsoft is currently interested in running. Chip generations matter in this market: each new round of Nvidia GPUs brings sizable gains in speed and energy efficiency, which is why operators of large AI workloads typically push to run on the newest hardware available.

Oracle rejects demand concerns

An Oracle spokesperson said demand for its AI services remains strong, including for older GPUs used to train and run AI models. In September, Oracle announced it was renewing contracts for four-year-old GPUs at prices 20% higher than when they were initially sold.

The conflicting signals have raised the question of whether Microsoft is leaving because demand for Oracle's cloud services is falling, or simply because it wants newer AI chips. The disagreement lands in the middle of a wider industry debate over whether AI computing demand will keep pace with the data centers being built — a question that cuts especially close for Oracle, which has positioned its cloud business around AI workloads in recent years.

A 2023 deal made during an AI chip shortage

The arrangement began in 2023, when Microsoft rented computing power from Oracle to support a new version of Bing with AI features. At the time, there was not enough computing capacity to meet growing demand from AI projects. The GPU crunch was industry-wide, and it gave rise to a rental market in which companies with spare hardware leased computing power to others by the hour.

The deal was seen as unusual back then: Microsoft, one of the world's biggest cloud providers, was relying on a competitor for extra computing power. It was, however, a temporary fix that allowed Microsoft to keep its AI services running for business customers while building more data centers of its own. Once those facilities were ready, the company planned to move the work to its Azure cloud.

Timing lands amid a tech selloff

The news came as tech stocks were already falling. On Thursday, the Nasdaq Composite dropped 5.5%, while the Philadelphia Semiconductor Index fell 12% — its biggest daily loss since March 2020, according to Investing.com.

Investors remain concerned about how much companies are spending on AI and data centers. That concern has spilled into worries about the rising share prices of companies benefiting from the AI expansion.

Details from both companies — how Oracle describes AI demand in coming quarterly updates, and where Microsoft ultimately hosts the affected workloads — will help settle the question the report has raised.