Analysis
Microsoft reportedly declines option to double its Texas contract with Nscale, weeks before the neocloud's IPO
The FT reports Microsoft declined an option to more than double its Nscale Texas contract; the existing deal stays and the IPO impact is unproven.
On November 5, 2026, the Financial Times reported, citing three people familiar with the matter, that Microsoft declined an option to more than double its existing contract to rent computing power from Nscale at a Texas site. The option was part of a potential deal worth tens of billions of dollars. Nscale, a London-based AI infrastructure company, has filed for a US IPO at a valuation that could reach $35 billion. Whether this report changes the IPO is not established.
The essentials
- What is reported: Microsoft did not exercise an option on extra capacity in Texas. Microsoft and Nscale declined to comment, and Reuters said it could not immediately verify the report.
- What stays: according to the FT's sources, the existing Texas contract remains in place, and the decision was taken months ago, before Nscale's September filing.
- The backlog: one person told the FT the decision does not affect Nscale's total contracted backlog of about $103 billion.
- What is not established: the effect on the IPO, and any broader tightening of Microsoft's oversight of risky projects. We found no source for that claim, so this article does not cover it.
What exactly did Microsoft decline?
Nscale announced in October 2025 that it would serve Microsoft from a campus of about 240 MW in Texas, with an option for a second phase of 700 MW from late 2027. Nscale has now told the FT the option was closer to 500 MW and concerned capacity at its own adjacent site (Capacity, citing the FT). Data Center Dynamics adds that the capacity in question is in Ward County, separate from the Ionic Digital campus where Microsoft already operates.
Why does it matter for the IPO?
Nscale's S-1, filed on September 18, 2026, lists $103.4 billion of active and contracted value, including up to about $43.8 billion from Microsoft through December 2033 (FourWeekMBA, summarizing the filing). A declined option means Nscale has to find other customers for that capacity. Nscale has since signed a $3.5 billion agreement with Figure at its Barstow site (Data Center Dynamics). The FT's sources say the backlog is unaffected, which is why the IPO effect remains an open question.
This follows the Essex withdrawal
Weeks earlier, Microsoft withdrew from anchoring Nscale's Loughton site in Essex, where it had agreed to rent 23,000 Nvidia Vera Rubin chips, after grid delays pushed power into the 2030s (Computing). Aker's CEO called it one relatively minor contract in a bigger portfolio. Both companies said they remain committed to their partnership.
Summary table
| Point | What sources say as of November 5, 2026 | Source |
|---|---|---|
| Report | Microsoft declined an option to more than double its Texas contract | FT, via Dealroom and DCD |
| Sources | Three unnamed people; Microsoft and Nscale declined to comment | Dealroom |
| Timing | Decision taken months ago, before the September IPO filing | Capacity |
| Existing contract | Remains in place | Capacity |
| Option size | 700 MW in 2025 announcement; closer to 500 MW per Nscale | Capacity |
| Backlog | About $103 billion, reportedly unaffected | Capacity |
| IPO | Filed in September; valuation up to $35 billion | Dealroom |
Frequently asked questions
Did Microsoft cancel its Texas contract with Nscale?
No, according to the FT's sources. The existing contract remains; only the option to expand was not exercised.
Does this sink Nscale's IPO?
That is not established. The report adds to pressure on the company, but one source says the backlog is unchanged, and we found no statement from Nscale on the IPO.
Method and limits
Sources as of November 5, 2026. We did not read the Financial Times article, which is behind a paywall, and rely on Data Center Dynamics, Capacity, Dealroom, Computing and FourWeekMBA. The report rests on anonymous sources and was not independently verified by Reuters. We found no source for a wider Microsoft tightening of oversight of risky projects. We tested nothing.
Sources
- Data Center Dynamics: Microsoft declined option for expanded compute contract in Texas with Nscale (verified 2026-11-05)
- Capacity: What Microsoft's Texas decision means for Nscale's $35bn IPO (verified 2026-11-05)
- Dealroom: Microsoft walks away from option to double its Texas deal with Nscale (verified 2026-11-05)
- Computing: Microsoft pulls out of Nscale deal, putting $35bn IPO at risk (verified 2026-11-05)
- FourWeekMBA: Microsoft said to reject option to expand Nscale Texas deal (verified 2026-11-05)
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