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Microsoft has declined an option to expand its existing computing capacity agreement with Nscale at a Texas data centre.
The decision marks another setback for the UK’s most valuable AI start-up as it prepares for a potential $35 billion stock market listing.
According to people familiar with the matter cited by the Financial Times (FT), the US technology giant has rejected an opportunity to lease additional computing capacity worth tens of billions of dollars.
The development could force Nscale to secure alternative customers or risk losing substantial future revenue.
Why Microsoft Rejected the Texas Expansion Deal
Nscale signed an agreement with Microsoft in October 2025 to lease approximately 240MW of computing capacity at a data centre in Ward County, Texas. The contract also included an option for additional capacity.
Nscale subsequently clarified to the FT that the expansion option covered approximately 500MW at its own site. Microsoft has now decided against exercising this option.
The decision also affects Nscale’s opportunity to secure customers for an adjacent data centre being developed by cryptocurrency miner Ionic Digital.
Nscale holds the right of first refusal to find customers for the neighbouring facility.
However, Ionic Digital has not secured power for its remaining capacity and can offer the expanded energy supply to other AI, cloud and enterprise companies.
The setback arrives as Nscale, backed by Nvidia and led by former Australian cryptocurrency miner Josh Payne, prepares for a potential IPO this year.
Microsoft previously withdrew from a $3 billion computing capacity agreement at Nscale’s Essex data centre in the UK.
Meanwhile, Nscale’s flagship West Virginia project, linked to its $45 billion computing deal with Anthropic, has encountered construction delays and opposition from residents.
The company is also developing data centre facilities in Portugal and Norway as it seeks to expand its AI infrastructure business.
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