Microsoft declines option to expand Texas Nscale contract

The option covered a second phase at Nscale's 240-megawatt campus in Barstow, Texas, which it leases from bitcoin miner Ionic Digital. Nscale is due to deliver about 104,000 Nvidia GB300 chips to Microsoft there from the third quarter of 2026. The 700-megawatt expansion would have started in late 2027 and taken the site to about 940 megawatts, according to the Financial Times, which said the extension would have been worth tens of billions of dollars to Nscale.

The option was part of a deal the two companies signed in October 2025. Under it, Nscale agreed to supply Microsoft with about 200,000 Nvidia GB300 chips across US and European sites. Texas was the biggest piece of that arrangement.

The existing Texas contract stays in place, and a person familiar with the matter told the Financial Times that Microsoft decided not to expand months before Nscale filed for its IPO in September. The person also said the decision has no impact on Nscale's $103bn total contract value.

Why the IPO matters

Nscale is asking investors to value it at up to $35bn in a New York listing. Its IPO filing says Microsoft and Anthropic account for about 85% of its $103bn total contract value. Only $2.6bn of that total was active as of the end of August, or about 2.5%.

Statements of work signed with Microsoft between September 2025 and April 2026 are worth up to about $43.8bn through December 2033, excluding optional extensions. That is about 43% of the total contract value. The gap between the headline backlog and active revenue is the central risk for IPO investors: most of the $103bn is contracted future work, not money already flowing.

The filing carries its own warnings. Nscale's customer contracts include performance milestones and delay penalties, and the company has said missing them could trigger substantial penalty payments or customer remedies. Anthropic may terminate a tranche of its agreement without liability if Nscale fails to deliver within a specified period after the expected delivery date.

The Essex setback

The Texas decision follows Microsoft's October withdrawal from a deal to anchor Nscale's Loughton site in Essex, which ministers had billed as the UK's largest AI data centre. UK Power Networks told Nscale it could not supply enough power to Loughton until the early to mid-2030s. Nscale said it remained committed to the project and was exploring on-site generation and other UK sites. A Microsoft spokesperson said the Essex decision related to a single site and that the company remained committed to its partnership with Nscale.

What happens next

Nscale was already in discussions with several major customers about the rest of the Texas capacity, the person told the Financial Times. The company was also in talks with Anthropic over a computing deal worth about $45bn last month, according to reports. Tech.eu reported on 4 November that Nscale is close to a new Anthropic deal that would double its commitment at a West Virginia site.

Nscale raised $3.36bn in a pre-IPO convertible round led by hedge fund Third Point and reported a net loss of $1bn on revenue of $141m in the first half. It filed for its IPO in September, and the listing could come as soon as this month.

The listing will test how investors price a backlog concentrated in two customers after Microsoft declined to add the Texas phase.