How Nscale’s Unbuilt Data Centers Undercut Its $35 Billion IPO Pitch

AI chip rental business Nscale, which has filed paperwork indicating its plan to go public, is a puny, relatively new entrant in the neocloud race. At first blush, it looks to hold a lot of promise, posting rapid growth in the past year and boasting a backlog of contracted revenue on par with that of older rival CoreWeave.

But nearly all of Nscale’s $103 billion in contract commitments rely on data centers it hasn’t yet built—or even raised all the money needed to build. The company hasn’t secured the Nvidia chips it needs to fulfill those future contracts. That makes Nscale a symbol of the risks inherent in the AI boom. It also suggests the $35 billion valuation for which it is reportedly aiming in its initial public offering looks far too rich. The right valuation is probably less than half that.

Let’s step back. Nscale has been operating for barely two years, having opened its first AI data center, located in Norway, in August 2024. Through a series of acquisitions and joint ventures, it has expanded to five data centers in operation—delivering half a gigawatt of computing capacity—but has contracted to build another 12, increasing capacity to 10 gigawatts.

Its revenue growth, to $140.6 million in the first half of this year from $10.4 million in the same period of 2025, reflects that early expansion. But it’s not indicative of Nscale’s long-term growth potential, which rests on its ability to successfully launch all the planned data centers.

That could be challenging, at least within the scheduled time frame, given the shortage of power and the challenges facing existing cloud firms in getting enough energy to connect data centers under construction. Oracle this week invoked legal protections to shield itself from potential financial liabilities in the event of delays affecting one of its data center projects in New Mexico. It is currently facing some hurdles to obtaining a power supply at the site.

Some of Nscale’s contracts have provisions allowing customers to walk away if the company is late in delivering compute. Those include its deal with Anthropic—which accounts for nearly half its contracted revenue, Nscale’s IPO filing says. And yet it hasn’t even lined up the financing it needs to finance the Anthropic work, according to the filing.

Indeed, OpenAI pulled out of an agreement with Nscale, which had announced a partnership with OpenAI and industrial firm Aker ASA to develop the Stargate project in Norway, originally announced last July. Fortunately for Nscale, Microsoft stepped in to assume the compute capacity, but the situation nonetheless highlighted the challenges of data center development.

Portugal Commitment

A key date for Nscale is 2028. It is scheduled to start delivering on many of its biggest compute deals in late 2027. They include its agreement with Anthropic and a deal it announced recently with robotics startup Figure AI. Also starting in late 2027, Nscale is due to start putting 66,000 Nvidia Vera Rubin graphics processing units into operation at a data center in Portugal to serve Microsoft. Nscale’s deal with Microsoft is roughly the same size as its deal with Anthropic.

Assuming Nscale is able to deliver all of these by the start of 2028—which is highly uncertain—how much revenue could it deliver that year?

The most optimistic scenario is around $16 billion, which would justify a $35 billion valuation, given that both CoreWeave and Nebius are trading at two to three times 2028 estimated revenue, according to S&P Global Market Intelligence. But that estimate is almost certainly far too high.

The average duration of Nscale’s contracts is 5.7 years. If the Anthropic and Microsoft deals, each worth around $44 billion, are divided by about six, Nvidia would generate a total of $14.6 billion a year over the six year time period. But those deals will likely scale up over time as new data center facilities come online. That suggests the revenue from these contracts will come more in later years than evenly divided over the period of the agreements.

Then there’s Figure AI, which says it has made an initial commitment for $3.5 billion of computing capacity with Nscale, “with intent to scale to over $6 billion.” Neither party stated the duration of the deal, but if we assume it’s potentially up to six years in length—in keeping with Nscale’s average—then it is likely only $1 billion in value per year at best.

If the Anthropic and Microsoft deals generate half their potential in 2028—and even that seems optimistic—then Nscale’s revenue that year could reach $8 billion. That would justify the $15 billion valuation Nvidia and other investors put on Nscale in a March funding round.

There are other variables investors contemplating Nscale have to consider. Compute prices are rising for short-term deals: CoreWeave, for instance, raised its prices 25% in July and again in mid-September. But given that Nscale has little capacity right now, it likely doesn’t have any to spare to take advantage of those higher prices.

Customer concentration is another risk for Nscale, as is the case with many neoclouds. About 42% of Nscale’s backlog comes from Microsoft, which has been reducing its reliance on third-party data centers as it builds more of its own. Anthropic is about the same.

The biggest risk is the lack of financing. Data center development is a wildly capital-intensive business. And with interest rates rising and investor interest in buying AI-related debt diminishing, data center financing is likely to get tougher in terms of costs and availability.

Nscale had relatively little debt as of June 30, but it has issued nearly $11 billion in debt since then. On Friday, the company announced it had raised $3.36 billion via convertible loan notes, of which $1 billion came from Nvidia. But Nscale will need to raise more money: It had $24 billion of purchase commitment for technology equipment across its data center sites, payable this year and next year, according to its IPO filing. The company had $1.5 billion of cash as at June 30.

It doesn’t help that Nscale’s losses are growing. The company burned about $1.6 billion in cash the first half of the year, over 1,000% more than in the same period a year ago. Rising interest rates and any price hikes by Nvidia or other suppliers of data center hardware could add another layer of difficulty to Nscale’s pursuit of profitability.

If NScale can’t get lenders to pour more capital into its business at a reasonable cost, it may not be able to deliver on converting its $100 billion–plus pipeline to revenue.

The appetite of investors for more AI-related debt also remains a question. Jas Khaira, head of Blackstone’s AI investment team, said last week at The Information’s AI Agenda event in San Francisco that Blackstone was still figuring out which kind of investors would step in to help finance the AI build-out.

“We have not mapped out who’s going to buy all the debt,” Khaira said. “We have some hypotheses, but the honest answer is we don’t know where all of it will come from.”