Microsoft Drops Nscale Texas Data Center Expansion Option, Putting Tens of Billions in Potential Contracts at Risk

Microsoft has decided not to expand its data center lease agreement with U.K. AI infrastructure company Nscale in Texas, relinquishing an option for about 500 megawatts of additional capacity tied to potential contracts worth tens of billions of dollars. According to Sina Finance, exercising the option could have more than doubled the existing contract, while the original lease remains in place. In October 2025, Nscale announced an agreement with Microsoft to provide about 240 megawatts of computing capacity at a data center near Ward County, Texas, with an option to expand. Nscale said Microsoft’s decision would not affect its current contract backlog of $103 billion. The company has agreements with robotics company Figure and other customers and is in talks with additional potential clients. Nscale is preparing for an initial public offering at a valuation of about $35 billion. It needs to find other customers for the relevant data centers or risk losing billions of dollars in future revenue. The decision comes as concerns grow about AI infrastructure projects’ reliance on debt financing. For computing-capacity providers such as Nscale, CoreWeave, and Nebius, long-term contracts with major technology companies are an important condition for financing data center construction. Nscale reported revenue of $141 million and a net loss of $1 billion in the first half of this year. Earlier this year, Microsoft also withdrew from a $3 billion computing-capacity lease deal involving a data center in Essex, England. Nscale’s flagship data center project in West Virginia faces construction delays and local opposition. The project is a significant part of its $45 billion computing agreement with Anthropic. Nscale is in talks with Anthropic about expanding the partnership further, involving another 460-megawatt data center in the area.