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

Microsoft has rejected an expansion of its Texas data center lease with Nscale, according to a report from the Financial Times. The decision could prove problematic for the British AI infrastructure firm as it gears up for a potential $35 billion IPO. The report, based on conversations with three sources familiar with the matter, indicates that Microsoft opted not to more than double the size of its existing contract at the Ward County site, a deal that could have been worth tens of billions of dollars.

Nscale now faces the prospect of finding new customers for the site or losing out on billions of dollars in future revenue. As AI computing-rental firms rely on new contracts to continue financing data center construction, Microsoft's reluctance in this case reflects growing concerns about the mounting debt from AI infrastructure projects, particularly among companies like CoreWeave and Nebius.

Earlier this year, Microsoft abandoned a projected $3 billion deal to lease computing capacity at Nscale's UK data center in Essex. Nscale's flagship West Virginia site, a crucial component of its $45 billion deal with Anthropic, has also been hit by construction delays and local opposition. Talks are ongoing between Nscale and Anthropic to expand the deal to include a second 460-megawatt data center.

In October 2025, Nscale inked a lease agreement with Microsoft for about 240 megawatts at a site under development by crypto miner Ionic Digital, with an option for an additional 700 megawatts. However, the SEC filings reveal that Nscale does not yet have power secured for the remaining capacity at the Ionic site, where Microsoft retains the right of first refusal.

Nscale did sign a deal with robotics firm Figure and undisclosed agreements with other companies at its Ward County site, and is in discussions with several other potential clients. Microsoft's stance will not impact Nscale's total contract backlog of $103 billion, according to the report. Recent calls from incoming Democratic governors, including those in Texas, have advocated for an immediate halt to data center development.