Microsoft turns down option to expand Nscale's Texas AI deal ahead of IPO

A Texas option that will not be exercised

Microsoft has declined an option to more than double the computing capacity it rents from Nscale at a 240-megawatt campus in Barstow, Texas, according to the Financial Times, which reported the decision on Thursday, 5 November. Citing people familiar with the matter, the paper said the extra capacity could have been worth tens of billions of dollars to the London-based AI cloud company. The option was part of an agreement signed in October 2025, under which Nscale would supply about 200,000 Nvidia GB300 chips to Microsoft at sites in the US and Europe. The Texas site carried the largest share of that deal, with about 104,000 chips due from the third quarter of 2026. Nscale said at the time that Microsoft also held an option on a second, 700-megawatt phase from late 2027, and the existing Texas contract remains in place. A person familiar with the matter told the FT that Microsoft made its decision months before Nscale filed for a US IPO in September.

A listing under pressure

Nscale is seeking a valuation of up to $35bn in its New York listing, and the FT calls the rejection a fresh test for the company's plans. Before filing, it closed a $3.36bn pre-IPO round and presented a large backlog of contracted future revenue. The Nvidia-backed company, led by Josh Payne, counts Sheryl Sandberg and Nick Clegg among its board members. In the first half of 2026 it posted a net loss of $1bn on revenue of $141mn, and it says it has line of sight to about 10GW of potential power capacity. Nscale is also courting Anthropic, with the two in talks in October 2026 over a computing deal worth about $45bn. Microsoft had earlier pulled out of a $3bn deal to lease capacity at Nscale's Essex site. Aker, a Norwegian shareholder holding roughly 23%, has downplayed that setback. Aker chief executive Øyvind Eriksen said of the Essex deal:

“That was one, relatively speaking, minor contract in a bigger portfolio.”

Voters push back on data centres

On Election Day, Tuesday 3 November, restrictive measures on data centres across 10 states went 43-1 at the ballot box, with an average of 75% of people favouring restrictions. In Texas, a new Democratic governor has promised to keep a moratorium in place until the legislature passes comprehensive reforms. The FT adds that incoming Democratic governors, including in Texas, have called for an immediate moratorium on data centre development. Candidates who won in other emerging data centre states also back similar restrictions.

What the winning candidates want

Incoming Democrats are not expected to halt data centres, since Virginia, which Democrats run entirely, hosts the largest data centre hub in the US, and unions are among the buildout's strongest backers. Many of the new winners nonetheless share demands that tech companies pay for their own infrastructure and bring their own power, so grid strain does not reach ratepayers. Tax breaks face repeal, companies must show environmental and labour protections, and voters will not tolerate more nondisclosure agreements. Amazon, Google, Microsoft, OpenAI and other developers have begun laying out proposals, many of which already commit to covering infrastructure and power costs. OpenAI's chief global affairs officer, Chris Lehane, compared the shift AI must make to the 1996 election. He told Axios in an interview:

“Smart, talented folks take messages from voters and react and respond to them.”

Compute access beyond the US

In the UK, Prime Minister Andy Burnham announced at the UN General Assembly a new AI partnership with the US designed to protect critical national infrastructure. An Oxford University study found that just 32 countries host specialised AI data centres, with US and Chinese firms operating more than 90% of them. American tech giants run 87 AI hubs worldwide, while European companies run six. Meanwhile Zelestra, the Spanish renewable energy company owned by EQT, plans to invest €10.5bn ($11.8bn) over four years to meet AI demand in the US, as part of its 2026-2030 strategy.