Nscale, a British AI startup backed by Nvidia and valued at $35 billion, has run into a significant obstacle ahead of its planned initial public offering after Microsoft declined to expand a data-center leasing agreement in Texas. According to the Financial Times, Microsoft chose not to exercise an option to more than double its existing contract for computing capacity at a Texas site.
The move creates a potential revenue shortfall that Nscale — which aims to list this year — must replace by finding new customers. Large cloud and data-center deals are critical for companies building AI infrastructure because they support borrowing capacity and finance investment.
Context and wider implications
Investor appetite for heavily indebted infrastructure projects has cooled, particularly for new-generation cloud providers such as CoreWeave and Nebius. At the same time, social resistance to data-center construction in parts of the United States has become a political issue, contributing to the debate around this year’s midterm elections and prompting calls from some incoming Democratic governors for construction moratoria in states including Texas.
Those trends increase the risks for companies like Nscale that depend on long-term, large-scale leases to underpin growth.
Other setbacks for Nscale
This is not the only recent reversal involving Microsoft and Nscale. Earlier in the year Microsoft pulled out of a $3 billion deal relating to an Nscale data center in Essex. Nscale’s major West Virginia investment is also delayed because of local opposition; that facility is considered important for fulfilling a $45 billion contract with Anthropick.
Financially, Nscale reported $141 million of revenue and a $1 billion net loss in the first half of 2026.
Details on the Texas capacity and Microsoft’s option
In Ward County, Texas, Nscale’s filings indicate 1.2 gigawatts of capacity is being built: 500 megawatts on Nscale’s own site and 700 megawatts on an adjacent site being developed by Ionic Digital, a crypto-mining firm for which Nscale holds a pre‑purchase right.
Last October, Nscale said it was leasing 240 megawatts on the Ionic site to Microsoft, and that Microsoft had an option for a further 700 megawatts in a second phase. The company has since clarified that the option was actually for roughly 500 megawatts and applied to Nscale’s own site — and Microsoft ultimately declined that option.
Parts of the Ionic-developed site still lack secured power supply from Nscale’s side. Although Microsoft retains a pre-purchase right for some of that capacity, documents filed with the U.S. Securities and Exchange Commission indicate Ionic reserves the right to sell the expanded power capacity to other companies or use it for its own purposes.
How Nscale is responding
Nscale is pursuing other agreements to increase utilization at its Texas data center: in September it signed with robotics firm Figure and is in talks with other potential customers. People close to the company say Microsoft’s decision does not affect Nscale’s $103 billion total order book, and that the startup is discussing with Anthropick the possibility of expanding the West Virginia collaboration via a second 460-megawatt leased data center.
Despite those efforts, the combination of prior contract withdrawals, local opposition to key projects, and substantial reported losses complicates Nscale’s path to a successful IPO. The company remains active internationally, with construction projects in Portugal and Norway as well as its U.K. and U.S. sites, but must now replace the revenue Microsoft’s declined expansion would have provided.
(This article was prepared with assistance from an AI tool; the final content was edited and verified by our journalist.)
