Microsoft Declined to Expand Texas Data Center Offer With Nscale Before IPO

Nscale's self-owned data center capacity is now available for other hyperscalers, and it has secured a significant deal with Figure.

Microsoft has declined an option to expand its compute capacity agreement with Nscale in Texas. The original contract, signed in October 2025, secured approximately 230MW of Nvidia infrastructure capacity at Nscale's data center in Barstow, Texas, which is leased from Ionic Digital. Microsoft is already utilizing this capacity. While Microsoft previously had options for additional capacity, reports indicate these discussions were for a separate Nscale-owned site and were held months ago, not impacting Nscale's total $103 billion backlog. Nscale has since secured a $3.5 billion deal with Figure to deploy 100,000 Nvidia GPUs at its self-owned data center. Nscale is also reportedly in talks with other potential hyperscale customers and is pursuing a second major agreement with AI lab Anthropic, with Nvidia potentially backing the first deal. Nscale is preparing for an initial public offering.

Microsoft's decision not to expand its Texas data center footprint with Nscale, despite having options for substantial additional capacity, signals a re-evaluation of its immediate hyperscale needs in the region. While Nscale secured a significant deal with Figure for its self-owned site, the situation in Texas also highlights broader market dynamics, including potential regulatory headwinds and the ongoing demand for AI-specific compute power. The company's ongoing IPO and other potential large-scale deals suggest a continued aggressive growth strategy for Nscale, independent of this specific Microsoft expansion.

This event underscores the dynamic nature of hyperscale data center contracts, where options may be declined based on evolving strategic priorities or market conditions, even with substantial existing partnerships. Nscale's successful pivot to other significant clients like Figure demonstrates its ability to secure alternative high-value commitments, particularly for AI workloads. The company's large backlog and upcoming IPO indicate a strong market belief in its expansion plans, even as it navigates the complexities of power acquisition and regulatory environments in key growth regions like Texas.