Microsoft Reportedly Walks Away from $3 Billion Oracle Cloud Deal

Microsoft has reportedly walked away from a potential cloud infrastructure leasing deal with Oracle that could have been worth more than $3 billion, according to a report by Business Insider.

The report claimed that the talks between the two tech giants collapsed over security and compliance concerns, specifically Oracle’s lack of Federal Risk and Authorization Management Program (FedRAMP) certification for its public cloud. However, Oracle has disputed the account.

In a statement to Reuters, the company said: “The details mentioned in the article are inaccurate. Microsoft is both an OCI partner and a customer. We have a tremendously collaborative and fruitful partnership, where we often talk about ways we can expand upon our ongoing work together.”

FedRAMP at the center

For those unaware, FedRAMP is a standardised security framework required for handling US government data. Business Insider reported that Microsoft had planned to shift some workloads to Oracle Cloud Infrastructure but backed out when Oracle declined to add FedRAMP to its public cloud. Oracle executives told the outlet that implementing FedRAMP would be a “massive engineering lift.”

Microsoft’s capacity crunch

The failed talks highlight the growing strain on computing resources amid the AI boom. Microsoft has projected $190 billion in capital expenditures for 2026, largely to expand data center capacity. The company has already turned to Amazon Web Services to support GitHub after AI-driven outages, and is reportedly “shopping for capacity everywhere” to prioritise Azure resources for customers. Other tech giants are striking similar deals to secure AI compute. Google recently agreed to pay SpaceX $920 million a month for capacity from October 2026 to June 2029, just months after selling compute to Anthropic. These partnerships underscore how even the largest players are scrambling to meet surging demand.

Pentagon signs $9.69 billion Microsoft software deal

In related news, last month, the US Department of Defense announced a five-year agreement worth $9.69 billion to combine software licenses used across the US military and intelligence agencies into a single contract. According to a report by news agency Reuters, the deal will mainly cover products and services from Microsoft, including Microsoft 365 tools such as Word, Excel, PowerPoint and email services. Officials cited in the report said the move is aimed at reducing duplicate spending and improving efficiency by centralising software purchases that were previously managed separately by different military branches and government agencies. The agreement, called the Core Enterprise Technology Agreement, will bring together software contracts used by the military services, intelligence community and the US Coast Guard. According to Reuters, Pentagon officials said the deal does not represent new spending because the software subscriptions and licenses were already being paid for through existing budgets.