Microsoft has rejected an option to expand its existing deal with Nscale for computing power at a Texas data centre. The update comes as a fresh setback to the UK’s most valuable AI start-up as it prepares for a potential $35 billion stock market listing. The US software giant has decided not to take up an option to lease additional computing capacity worth tens of billions of dollars, according to people familiar with the matter cited by the Financial Times (FT). As per the report, the decision could force Nscale to find new customers for the site or risk losing billions of dollars in potential future revenue.
Why Microsoft rejected Nscale’s Texas data centre deal
Nscale had secured a deal with Microsoft in October 2025 to lease around 240MW of computing capacity at a data centre site in Ward County, Texas. The agreement also included an option for Microsoft to lease additional capacity. Nscale later clarified to the FT that the option was closer to 500MW and related to additional capacity at its own site. Microsoft has now decided against taking up that option, according to people familiar with the matter.The development is significant for Nscale, which has the right of first refusal to find customers for an adjacent data centre site being developed by crypto miner Ionic Digital. However, the company has not yet secured power for the remaining capacity at that site. Ionic Digital has reserved the right to offer the expanded energy capacity to other AI, enterprise and cloud infrastructure companies, or use it for its own operations.
Nscale faces growing challenges ahead of IPO
The setback comes as Nscale, backed by Nvidia and led by former Australian cryptocurrency miner Josh Payne, prepares for a potential IPO this year. The company has also faced challenges at other projects. Earlier this year, Microsoft withdrew from a $3 billion deal to lease computing capacity at Nscale’s data centre in Essex, UK.Its flagship data centre project in West Virginia, which is central to its $45 billion computing deal with Anthropic, has also faced construction delays and opposition from local residents.Nscale is also developing data centre sites in Portugal and Norway to expand its AI infrastructure business.