Microsoft is increasingly regretting its bet on "neoclouds" and has tightened scrutiny of some data center projects.

Microsoft once helped spawn the "neocloud" boom. To meet massive demand for its cloud and AI services, the company signed multibillion-dollar contracts with emerging data center operators. Now, as the neocloud companies face project delays, regulatory hurdles and high costs, a sense of regret is rising among some of Microsoft's top executives. People familiar with the matter said Microsoft is tightening oversight of some data center projects at Nebius Group NV, IREN Ltd. and Nscale Plc, exiting projects it deems riskier, and is also internally discussing whether to sign new neocloud deals. That friction showed up on Microsoft's most recent earnings call, when Chief Financial Officer Amy Hood said delays in some third-party compute deliveries were disrupting the company's spending plans. It was the third time she had flagged such issues on an earnings call. According to people familiar with the matter, some of the recent problems involved the cabling at an IREN project under development in Texas. Data center servers are interconnected through complex fiber-optic networks. The campus also had a generator fire in April, and IREN disclosed in August that there were hardware delivery delays locally. People familiar with the matter said IREN and Microsoft executives held talks last week and negotiated a new timeline that could push the project's completion back by weeks or even months.