Microsoft Corporation (NASDAQ:MSFT) saw its shares climb 1.1% in premarket trading on Tuesday, recovering some ground after a sharp decline the previous session. The uptick came as the company announced a landmark 20-year power supply agreement with Chevron Corporation to support a massive AI data center campus in West Texas, though lingering concerns over the cost of AI infrastructure continued to weigh on the broader technology sector.
Shares of Microsoft were trading at $371.54 as of 6:40 a.m. EDT, up from Monday's close of $367.34. The stock had fallen 3.18% in the prior session, with 45.2 million shares changing hands. The broader market also faced pressure, with the Nasdaq Composite dropping 1.32% and the S&P 500 edging 0.37% lower on Monday.
Chevron Power Deal Fuels AI Expansion
Chevron has signed a 20-year agreement to supply electricity to a Microsoft data center campus in Pecos, Texas. The facility, named Project Kilby, will be built adjacent to the data center and will provide dedicated natural gas power as Microsoft seeks to add 2 gigawatts of data-center capacity. Noelle Walsh, head of cloud operations and innovation at Microsoft, described the new build as "one of the largest single capacity additions" the company has undertaken, highlighting the surging demand for AI and cloud services. Microsoft will also contribute capital for new energy and infrastructure at the site.
The deal underscores a strategic push by Microsoft to secure power supply ahead of potential shortages, as data centers—large facilities housing servers for cloud computing and AI—require reliable and substantial electricity. For major cloud providers, power availability has become a critical bottleneck in scaling operations.
Market Questions AI Spending Returns
Despite the positive news, the broader market remains skeptical about the pace at which massive AI infrastructure investments will generate returns. On Monday, shares of Microsoft, Amazon.com, and Meta Platforms fell alongside other megacap technology stocks, as investors reassessed the escalating costs of AI development. Alphabet also slipped following another notable executive departure from Google DeepMind.
"This is more of a broader sector pullback," said David Wagner, head of equity and portfolio manager at Aptus Capital Advisors, in comments to Reuters. Wagner noted mounting worries about tech firms' AI capital spending, highlighting a divide between companies "receiving the checks" and those "writing the checks" in the AI ramp-up.
Nasdaq 100 futures dropped over 2% in early Tuesday trading, as pressure persisted. Market concerns about potential U.S. interest rate hikes and the use of debt to fund AI spending have fueled anxiety. "Some investors worry Big Tech is spending too much on AI infrastructure," said Ipek Ozkardeskaya, senior market analyst at Swissquote Bank.
Azure Growth Concerns and Shareholder Lawsuit
Microsoft is ramping up infrastructure spending while some investors remain wary of its Azure cloud business. Last week, Reuters reported that Microsoft was hit with a shareholder lawsuit alleging the company failed to disclose weaker Azure growth and significant AI expenses. Microsoft has called the suit "without merit" and plans to contest it.
Bill Northey, senior investment director at U.S. Bank, described the sector as "very sentiment-driven," but pointed to strong fundamentals behind the AI data-center buildout, both for large cloud providers—known as hyperscalers—and their suppliers.
Long-Term Risks and Climate Questions
There is a risk that demand for AI services remains robust but investors may have to wait longer for returns. Higher interest rates could make long-term AI bets less appealing, and competition from cloud rivals like Alphabet and Amazon could pressure pricing. Additionally, Microsoft's Pecos campus, which will rely on natural gas, could raise fresh questions about the company's climate commitments. Microsoft has stated that the facility will initially operate "behind the meter," meaning it powers the campus directly rather than drawing from the public grid.
For now, Microsoft's share price is being driven more by the overarching question facing the AI trade: can the companies spending heavily on power, chips, and construction convert those costs into profits quickly enough to satisfy investors?
