Microsoft Declines to Expand Contract with Nscale's Texas Data Center
nashnova research
Microsoft has walked away from an option to lease roughly 500 MW of additional capacity at Nscale's Ward County, Texas site — forcing the UK AI-infrastructure firm to find new tenants or forfeit billions in potential revenue, all while it prepares for a $35 billion IPO.
What exactly did Microsoft pass on?
In October 2025, Nscale announced a ~240 MW lease to Microsoft, with an option for an additional ~500 MW at Nscale's own adjacent site.
Microsoft chose not to exercise that option. This means → Nscale now has a large block of uncommitted capacity in West Texas that it must fill independently.
In plain terms = Microsoft took the starter portion but declined to upsize the order.
Isn't this the second time Microsoft has pulled back?
Earlier this year, Microsoft exited a $3 billion deal to lease capacity at Nscale's Essex, UK data center after the site suffered grid-connection delays.
Two walk-backs in quick succession point to the same issue: uncertainty around Nscale's delivery timelines at multiple sites.
This reflects a hard limit — even in a red-hot AI-compute market, marquee clients will not wait indefinitely for a site to power on.
What cards does Nscale still hold?
The company says Microsoft's decision does not affect its total contract backlog of $103 billion.
At the Ward County site, Nscale has already signed robotics firm Figure for part of the capacity, plus undisclosed contracts with other companies; talks with additional prospects are ongoing.
At the adjacent Ionic site, Microsoft retains a right of first refusal on remaining capacity — but Nscale has not yet secured power supply for that portion.
How do the financials look ahead of the IPO?
In H1 2026, Nscale posted a net loss of $1 billion on revenue of just $141 million.
The company is also developing new sites in Portugal and Norway, claiming "clear visibility" on roughly 10 GW of potential power capacity.
In plain terms = cash burn is steep and revenue is thin, but Nscale is placing multiple global bets on continued explosive demand for AI compute.
What does this mean for the IPO?
Nscale is preparing to list this year at a target valuation of $35 billion. The company is led by former Australian crypto miner Josh Payne; Nvidia is a shareholder, and the board includes former Meta executive Sheryl Sandberg and former UK Deputy PM Sir Nick Clegg.
Its flagship West Virginia site — the anchor for a $45 billion Anthropic compute contract — also faces construction delays and local opposition.
This means → whether Nscale can lock in enough new tenants for the Texas site before listing will be the key test of whether that $35 billion valuation holds up.
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