When British neocloud provider Nscale goes public, the offering will test how public investors respond to a company whose revenue backlog is heavily concentrated with two customers. Nscale, spun out of Australian cryptocurrency miner Arkon Energy two years ago, reported more than $103 billion of contract backlog in its IPO filing.
Composition of the contracts
However, the backlog is highly concentrated: about 85% of the reported contract value is tied to two deals. One agreement is with Microsoft, under which Nscale would supply $43.8 billion of compute through 2033. The other is a $44.6 billion supply agreement with Anthropic.
The Anthropic arrangement is conditional on Nscale securing financing, and Anthropic retains the right to withdraw from or cancel the deal if Nscale does not meet milestones that the filing describes as "stringent." These conditions underscore the contingent nature of a large portion of Nscale’s contracted business.
Why this matters for the market
Nscale’s customer concentration highlights how interconnected the AI infrastructure ecosystem has become. A paper by credit hedge fund Sona Asset Management, cited in the Financial Times, found that many AI infrastructure providers depend heavily on a small number of customers. For example, competitor CoreWeave derives 67% of its revenue from Microsoft, while data-center builder Applied Digital gets 67% of revenue from Oracle and 30% from CoreWeave.
Sona’s analysis noted that such interconnectedness is not inherently negative, but it increases systemic vulnerability: a single setback or strategic change by a major customer can ripple through suppliers and peers.
Financials and financing
Nscale plans to list on the New York Stock Exchange (NYSE). The Financial Times reported the company expects a valuation of about $35 billion, and Bloomberg reported the IPO is targeting $3 billion in proceeds.
For the six months ended June 30, 2024, Nscale reported revenue of $140.6 million, up from $10.4 million a year earlier. Net losses widened to $1.02 billion from $369 million in the same period a year earlier.
Earlier this month, one of Nscale’s major investors, Nvidia, agreed to provide $1 billion of convertible debt to Nscale as part of a broader $3.1 billion financing package. The startup was valued at $14.6 billion when it raised a $2 billion Series C led by Aker ASA and 8090 Industries.
Competitors and operations
In addition to CoreWeave, Nscale’s competitors include Nebius, Lambda, and Crusoe — the latter announced last week that it raised $3.9 billion at a $30.9 billion valuation.
Nscale operates data centers in Norway, Portugal, Texas, and West Virginia. Its board of directors includes former Meta executives Sheryl Sandberg and Nick Clegg, as well as former OpenAI executive Fidji Simo.
Conclusion
If Nscale completes its IPO as planned, investor reaction will shed light on how willing public markets are to back companies whose contract portfolios are dominated by a few large counterparties. The company’s filing and its financing conditions also illustrate the concentration and conditionality present in parts of the AI infrastructure market.
