A Blow Before the IPO: Microsoft Pulled Out of a Multibillion-Dollar Deal with Rival Nebius
The most valuable British AI startup preparing to go public has lost the opportunity to close a new deal worth tens of billions of dollars, the FT has learned
Microsoft declined to extend its contract to lease data center capacity in Texas / Photo: X / Nscale
Tech giant Microsoft has walked away from a potential multibillion-dollar deal with data center operator Nscale, the Financial Times reports, citing sources. This is another blow to the UK’s most valuable AI startup, which is preparing to go public this year.
Details
Microsoft turned down the opportunity to more than double the amount of computing capacity it leases at the Nscale data center in Texas, sources told the FT.
The company signed a lease agreement for this data center in October 2025. Under the agreement, Nscale provided Microsoft with approximately 240 MW of computing capacity at the Ionic site in Ward County, Texas. At the time, Nscale reported that the contract included an option for a second phase of 700 MW. However, as the FT reports, Nscale told the publication earlier this week that the option provided for approximately 500 MW of additional capacity on the company’s own site.
According to sources, Microsoft has decided not to exercise its option. This means that Nscale will have to find new customers for the platform or lose billions of dollars in future revenue, the publication reports. Microsoft and Nscale declined to comment to the FT.
Nscale has already found a partial replacement: in September, the company reached an agreement with robotics developer Figure to lease space in Ward County and concluded several other undisclosed deals at the same site, sources said. Negotiations are also underway with several other potential clients, according to a source close to Nscale.
Microsoft's decision will not affect Nscale's overall order backlog of $103 billion, the FT source added. The company is also discussing expanding its partnership with Anthropic.
Context
Nscale operates in the neo-cloud computing sector, which means it builds data centers and leases computing power. Nscale’s main competitors include the publicly traded companies CoreWeave and Nebius, as well as the privately held companies Lambda and Crusoe. Nscale’s largest investor is the chipmaker Nvidia.
Nscale is the most valuable British startup in the field of artificial intelligence. In September, the company filed for an IPO and, according to the FT, expected to go public this year with a market capitalization of $35 billion. Microsoft’s decision to walk away from the deal will be a blow to this ambitious plan, the publication notes.
Preparations for the IPO are already taking place amid growing investor concerns about the debt burden of companies developing AI infrastructure, particularly so-called “non-cloud” providers, which include CoreWeave, Nscale, and Nebius. In addition, protests against the construction of data centers across the United States were one of the reasons for the Republicans’ defeat in the November 3 midterm elections, and newly elected Democratic governors, including in Texas, have called for a moratorium on such projects.
Nscale is also facing other challenges. Earlier this year, Microsoft walked away from a $3 billion deal to lease computing capacity at a data center in Essex, England. Meanwhile, Nscale’s flagship facility in West Virginia has faced construction delays and opposition from local residents.
This article was AI-translated and verified by a human editor
