Microsoft declines Nscale Texas expansion ahead of $35 bln IPO - report

Microsoft has declined to expand its Texas data center lease with Nscale, the Financial Times reported on Thursday, a fresh setback for the British AI infrastructure firm as it prepares a roughly $35 billion IPO.

Microsoft rejected an option that would have more than doubled the size of its existing contract to rent computing power at the Ward County site, a potential deal worth tens of billions of dollars, the report said citing three people familiar with the matter.  

Nscale must now find new customers for the site or lose out on billions of dollars in future revenue.

New contracts are key to the ability of AI computing-rental firms to keep borrowing to fund data center construction.

Wariness has grown over debt-heavy AI infrastructure building, particularly by so-called neoclouds such as CoreWeave and Nebius.

Nscale made a net loss of $1 billion on revenue of $141 million in the first half of 2026.

Earlier this year, Microsoft pulled out of a $3 billion deal to lease computing capacity at Nscale’s UK data center in Essex. 

Nscale’s flagship West Virginia site, central to its $45 billion computing deal with Anthropic, has also faced construction delays and local opposition, the report said. 

Nscale is in talks with Anthropic to expand its deal to lease a second 460-megawatt data center there.

In October 2025, Nscale announced a deal to lease to Microsoft about 240 megawatts at an adjacent site being developed by crypto miner Ionic Digital, with an option on a second phase of 700 megawatts. 

Nscale told the FT this week the option was closer to 500 megawatts and related to leasing extra capacity at its own site.

Nscale has not yet secured power for the remaining capacity at the Ionic site, where Microsoft still has right of first refusal, according to Ionic’s filings with the U.S. Securities and Exchange Commission, the report added.

Nscale signed a September deal with robotics company Figure and undisclosed deals with other companies at its Ward County site.

It is in talks with several other potential customers for that site, a person close to the company said.

Microsoft’s decision will not affect Nscale’s total backlog of $103 billion, the report said. 

Incoming Democratic governors, including in Texas, have called for an immediate moratorium on data center development.