Microsoft Declined a Tens-of-Billions Option to Double Its Texas Nscale AI Deal Ahead of the IPO

Nscale is asking New York investors to value it at up to $35 billion on the strength of its AI compute contracts. Its biggest customer just turned down the chance to make one of those contracts much bigger.

Microsoft will not exercise an option to more than double the computing power it rents from Nscale at a Texas data center, the Financial Times reported on Thursday. People familiar with the matter put the potential extension at tens of billions of dollars for the British company. Microsoft and Nscale did not respond to requests for comment outside business hours.

The Texas deal that was supposed to grow

Texas was the centerpiece of the expanded agreement the two companies struck in October 2025, under which Nscale would supply Microsoft with about 200,000 Nvidia AI chips across Europe and the US. Nscale leases a 240 megawatt campus in Barstow, Texas from bitcoin miner Ionic Digital, and is due to deliver about 104,000 chips to Microsoft there starting in the third quarter of 2026.

At the time, Nscale said Microsoft held an option on a second phase of around 700 megawatts from late 2027. Nscale later told the FT the option was closer to 500 megawatts at its own site. Either way, that second phase is the part Microsoft is passing on.

The existing contract survives. A person familiar with the matter said the current Texas deal is not affected, and that Microsoft made its decision several months ago, before Nscale filed for its IPO in September. The same person said the call does not change the roughly $103 billion in total contract value disclosed in the filing, and that Nscale was already talking to several major customers about the rest of the Texas capacity.

Second setback in weeks

The timing still stings. In October, Microsoft walked away from a deal to anchor Nscale's flagship data center in Loughton, Essex, after delays in connecting power pushed expected supply into the 2030s. Oyvind Eriksen, chief executive of Aker, which owns about 23% of Nscale, called the Essex loss "one, relatively speaking, minor contract in a bigger portfolio."

The portfolio is big, and Microsoft sits at the middle of it. Nscale's filing said that between September 2025 and April 2026 it signed statements of work with Microsoft worth up to about $43.8 billion through December 2033, excluding optional extensions. It closed a $3.36 billion pre-IPO round before filing.

Nscale's growth has always leaned on giant hyperscaler leases and creative money. Its Anthropic campus in West Virginia, a deal that could be worth about $45 billion, needed Nvidia to consider cosigning the construction loans because the bond market would not. Against that backdrop, every option a customer declines is one less number in the pitch.

Texas itself is getting harder, too. Investors and developers face uncertainty after Gina Hinojosa's election win, with the governor-elect pledging to halt new projects until the legislature passes laws governing the industry.

Microsoft's contract in Barstow keeps running. What it no longer offers Nscale is the promise of doubling.

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