Microsoft declines option to more than double Nscale's Texas AI capacity contract
AI Weekly reported that Microsoft turned down an option that would have more than doubled its existing Texas AI capacity contract with Nscale, citing Financial Times reporting. The FT said the extra capacity could have been worth tens of billions of dollars to the London-based provider. A person familiar with the matter told Reuters that Microsoft made the call several months ago, before Nscale filed for its IPO in September, and that the current Texas agreement is unchanged.
The Texas arrangement dates to October 2025, when Nscale said it would deliver about 104,000 Nvidia GB300 GPUs from a roughly 240 megawatt campus, with Microsoft holding an option on a second 700 megawatt phase from late 2027. Nscale has since told the FT that the disputed option was closer to 500 megawatts and covered extra space at its own adjacent site. Across regions, the wider Microsoft pact covers about 200,000 Nvidia chips in the US and Europe, and Microsoft's statements of work in the IPO filing total up to about $43.8 billion through December 2033, excluding extensions.
Nscale's total disclosed contract value stays at about $103 billion, according to the source Reuters cited, and the company is talking with several large customers about the remaining Texas capacity. The decision came weeks after Microsoft exited a roughly $3 billion anchor deal for Nscale's Loughton campus in Essex, where grid delays pushed power supply into the 2030s. Microsoft and Nscale declined to comment to the FT, and Reuters said it could not immediately verify the report.
Why it matters
For AI companies, the episode shows that an expansion option is not revenue. A provider's headline backlog may include committed contracts, but an option only becomes income if the tenant chooses to exercise it, and that choice can be made months before outside investors learn of it. Founders renting GPU capacity should read every expansion clause for who holds the option, the exercise deadline, the pricing basis, and what happens if the provider's power connection or financing slips.
For investors and vendors selling into this market, the case is a reminder to separate signed backlog from pipeline. Public and private investors are weighing how much of a neocloud's growth depends on a few large tenants. Lenders, suppliers and customers should ask whether a provider's plan rests on options a single buyer can let lapse, and whether any unsold capacity can be placed on acceptable terms.
Key points
- 1Microsoft's existing Texas contract is unaffected, and Nscale's disclosed total contract value remains about $103 billion.
- 2Earlier reports put the option at 700 megawatts, but Nscale now tells the FT it was closer to 500 megawatts.
- 3Microsoft's Texas statements of work total up to about $43.8 billion through December 2033, excluding optional extensions.
- 4Microsoft withdrew from a roughly $3 billion anchor deal at Nscale's Loughton, Essex campus weeks before this decision.
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