The most valuable British AI startup, Nscale, has suffered another major setback during its IPO sprint phase. Following the cancellation of a $3 billion lease agreement in the UK by Microsoft at the beginning of the year, the company has now also lost the latter's interest in undertaking a data center expansion project in Texas. These twin setbacks pose new challenges to its $35 billion listing plan.

According to The Financial Times, which cited three people familiar with the matter, Microsoft has decided to forgo the option of doubling the scale of its existing computing power lease contracts in Texas. This decision means that Nscale must find new customers for that site, otherwise it will lose billions of dollars in potential revenue. Both Microsoft and Nscale have refused to comment on this.

The news of this waiver comes shortly after Microsoft canceled a $3 billion lease with the Nscale data center in Essex, UK earlier this year, further eroding market confidence in the company, which is supported by NVIDIA and is led by former Australian crypto miner Josh Payne. Although Nscale claims that Microsoft's decision not to exercise the expansion option in Texas will not affect its total contract backlog of $103 billion, investors' concerns regarding AI's high-debt operating model in the infrastructure sector continue to rise.

Nscale Major shareholder Aker stock price drops by 7.5%.

Dezhou option falls through: Disagreements over scale and ownership

According to information disclosed by Nscale in October 2025, the company announced that it had reached an agreement with Microsoft to lease approximately 240 megawatts of computing power from a site located in Ward County Ionic Digital in Texas. Microsoft also “holds an option for 700 megawatts in the second phase.” However, Nscale clarified to The Financial Times this week that the actual scale of this option is closer to 500 megawatts and that it relates to additional capacity from Nscale's own sites, rather than the Ionic site.

According to people familiar with the matter, Microsoft ultimately decided not to pursue this option. This has forced Nscale to seek new customers for the remaining capacity of its own sites. As revealed by one of these individuals, Nscale has currently reached an agreement with robotics company Figure to lease some of the capacity in its own data center, and has also signed undisclosed agreements with other companies. Another person close to the company stated that Nscale is in talks with several potential clients regarding the remaining capacity of its own sites.

As for the Ionic site, the situation is more complex. According to the documents submitted by Ionic Digital to the U.S. Securities and Exchange Commission (SEC), the power supply for the remaining capacity of this site has not yet been secured. Ionic retains the right to expand energy capacity to other AI, enterprises, or cloud infrastructure companies, and Microsoft still has priority in negotiations for this site.

IPO Facing Pressure: Double Losses and Delays in Processing Sites

Nscale This time, the company encountered a cancellation by Microsoft, which coincided with a critical period for the company's preparations for this year's IPO. The board of directors of this British AI startup includes former Meta executive Sheryl Sandberg and the former British Deputy Prime Minister Sir Nick Clegg, with a valuation target of up to $35 billion.

However, the company's recent fundamentals are not optimistic. Nscale recorded a net loss of $1 billion in the first half of 2026, with revenue amounting to only $141 million. In addition to the failure of the Texas project, its flagship site located in West Virginia – which is a core asset for the $45 billion computing power contract with Anthropic – also faced construction delays and opposition from local residents. Meanwhile, the company's development projects in Portugal and Norway are still underway.

A broader industry context also constitutes pressure. According to the British newspaper The Financial Times, investors have become increasingly cautious about the high-debt construction models of "new cloud" companies such as CoreWeave, Nebius, and others (including neocloud). During the mid-term elections in the United States, public dissatisfaction over the construction of AI data centers became one of the reasons for the current Republican candidates' losses. Democratic candidates in several states, including Texas, called for an immediate suspension of data center development.

Backlog contracts for market stabilization: Anthropic negotiations may become a key variable

Despite numerous challenges, Nscale currently holds a backlog of contracts totaling $103 billion, and Microsoft Texas has decided not to affect this figure. The company is also in negotiations with Anthropic to expand their cooperation, planning to lease a second data center with a capacity of 460 megawatts at its largest site in West Virginia.

For Nscale, whether they can quickly acquire new customers for the Dezhou site and facilitate the expansion negotiations of Anthropic will directly determine their future financing capabilities and the progress of the IPO process. The neocloud business model relies heavily on long-term contracts to provide lending support for data center construction. Losing the commitment of Microsoft, a strategic anchor customer, means that the company's narrative logic in the capital market will face more stringent scrutiny.