Microsoft Declined to Expand Texas Data Center Offer With Nscale Before IPO

Microsoft Corp., one of Nscale’s primary customers, opted not to extend a contract at a Texas data center with the startup ahead of its planned public offering, according to a person familiar with the matter.

Nscale had agreed late last year to provide Microsoft with about 240 megawatts of computing capacity at the site in Ward County, Texas. At the time, Nscale said Microsoft held an option to add 700 megawatts. But the software giant decided not to move forward with the site because the project was waiting for regulatory approval for a energy connection, said the person, who requested anonymity to discuss private information.

On Thursday, Nscale updated its 2025 release to remove the reference to Microsoft’s option for 700 megawatts. A spokesperson said the Microsoft option was closer to 500 megawatts but declined to comment further. Microsoft declined to comment.

Microsoft’s decision came before London-based Nscale filed its S-1 in September, preparing to debut as one of the fast-growing neoclouds focused on artificial intelligence computing.

Since then, the fervor around AI data centers has cooled dramatically following market concerns over the heavy debt involved and rising political opposition. Some investors have pushed back on Nscale’s targeted valuation of around $30 billion for its IPO. Frustration with data centers was a key issue in this week’s midterm elections. In Texas, governor-elect Gina Hinojosa defeated Republican Greg Abbott after repeated calls for a moratorium on data center construction.

Read More: Texas Data Center Boom Collides With Backlash Ahead of Midterms

To raise funds, neoclouds like Nscale rely on commitments from blue-chip technology firms. According to Nscale’s S-1 filings, Microsoft represented about 42% of the $103 billion in contracted value. Nscale’s other major customer, Anthropic PBC, is spending considerable sums on computing resources, but lacks Microsoft’s proven creditworthiness.

In Texas, Nscale runs its own data center and a leased facility managed by Ionic Digital Inc., a US data center firm. Microsoft signed up for the leased site for its first 240 megawatts.

On an earnings call on Wednesday, Ionic Digital told investors that the company had received “provisional” approvals for the Ward County site form the Texas grid operator. Ionic Digital didn’t immediately respond to a request for comment.

The Financial Times reported earlier on Microsoft declining to take the additional capacity.

Microsoft also pulled out of a data center deal in the UK last month. The company still has contracts with Nscale in Portugal and Norway.