At a glance
- Company was offered capacity at Nscale-owned site adjacent to its up-and-running Ionic Digital data center
Microsoft Declines Expanded Texas Compute Deal With Nscale
Microsoft has decided not to exercise an option to expand its compute capacity agreement with Nscale in Texas, according to reporting from the Financial Times. The declined expansion would have represented tens of billions of dollars in future revenue for the neocloud provider.
The original contract was signed in October 2025. Under that agreement, Microsoft leases approximately 230 megawatts of Nvidia infrastructure at a data center Nscale operates in Barstow, Texas. That facility is itself leased from Ionic Digital. Nscale CEO Josh Payne stated on LinkedIn that Microsoft is already operating from the site, which Nscale converted from a steel shell to an operational AI data center in nine months.
Reports previously suggested Microsoft held options for an additional 700 megawatts at the site. The Financial Times reported that the figure was closer to 500 megawatts and related to capacity at an Nscale-owned site in Ward County, separate from the Ionic Digital campus. A person familiar with the matter later clarified to DCD that these discussions occurred several months ago and therefore had no impact on Nscale’s total backlog, which stands at $103 billion. Microsoft still accounts for approximately 40 percent of that backlog.
Alternative Site Offered and Declined
Ionic Digital plans to expand the Barstow campus by a further 466 megawatts, which would bring total capacity at the site to nearly 700 megawatts. However, Ionic does not yet have permission to bring that power to the site.
Because of that constraint, Nscale offered Microsoft capacity at its own data center on land adjacent to the Ionic Digital campus. That Nscale-owned facility has behind-the-meter power. Microsoft declined to take up that capacity.
Nscale has since backfilled at least some of that opportunity. The company signed an agreement valued at $3.5 billion with humanoid robotics company Figure to deploy 100,000 Nvidia Vera Rubin GPUs at its self-owned data center in Barstow. Other undisclosed deals have been signed with other companies at the location, and sources said Nscale is already in talks with several other potential customers for the remaining capacity, including hyperscalers.
Should the Ionic Digital campus secure its power connection agreement, Nscale retains the right of first refusal for that capacity because it is the customer.
Broader Partnership and Global Context
Despite the declined Texas expansion, Microsoft and Nscale maintain a large global partnership, including in the United States, Norway, and wider Europe.
Last month, Microsoft pulled out of Nscale’s Loughton data center project in the United Kingdom due to grid connection delays. Nscale is still pursuing that project.
Nscale is also reportedly in talks for a second $45 billion agreement with AI lab Anthropic. Nvidia is reportedly serving as a financial backstop for the first deployment.
IPO Plans and Market Environment
Nscale is in the process of launching an initial public offering, targeting a valuation of up to $35 billion. The company published its IPO prospectus in September. That document noted Nscale has five active data centers offering a combined 55 megawatts, with 12 more in various stages of development.
Much of the neocloud’s current value derives from large capacity commitments with existing investment-grade customers, reflecting the capital-intensive nature of data center buildouts and the fact that many projects remain ongoing.
Texas is facing an ongoing data center moratorium. Following the US midterm elections this week, newly elected Texas governor Gina Hinojosa called for a longer data center moratorium in the state, followed by tighter regulation. Hinojosa campaigned against data center projects in the lead-up to the election.
MegaWatt Intelligence Desk
Hyperscale & Grid Analyst. `More stories by $MegaWatt Intelligence Desk →`
