The tech giant also confirmed it won’t list DeepSeek in its app store, deepening scrutiny of Chinese AI platforms amid rising geopolitical tensions.
Smith stated that DeepSeek stores user data on Chinese servers—raising risks under Chinese intelligence laws—and warned of potential misinformation baked into its AI outputs.
Although Microsoft previously hosted DeepSeek’s open-source R1 model on Azure, it only did so after what Smith called “rigorous red teaming” to strip harmful content.
This move signals Microsoft’s strategic shift toward stricter AI governance, prioritizing data sovereignty and regulatory compliance.
The company’s Azure cloud business, which now contributes 30% of its revenue, is increasingly positioned as a secure alternative for enterprise clients wary of foreign data exposure.
The DeepSeek ban aligns with Microsoft’s broader reevaluation of its cloud infrastructure strategy.
Analysts report the company has canceled hundreds of megawatts in US data center leases, reflecting a pivot toward more agile and regionally compliant setups.
For investors, the move highlights both risk and resilience. While geopolitical frictions may weigh on near-term infrastructure expansion, Microsoft’s 15% year-to-date stock gain suggests market confidence in its long-term cloud and AI strategy.