On November 5, people familiar with the matter said that Microsoft (NASDAQ: MSFT) has decided not to expand its data center lease agreement with British AI infrastructure company Nscale in Texas, abandoning an option that could have more than doubled the size of the existing contract, with a potential contract value reaching tens of billions of dollars.

The decision deals a fresh blow to Nscale, which is preparing for an initial public offering at a valuation of about $35 billion. The company needs to find other customers for the related data centers, or it could lose billions of dollars in future revenue.

In October 2025, Nscale announced an agreement with Microsoft to provide about 240 megawatts of computing capacity at a data center near Ward County, Texas, with an option for further expansion.

The expansion option that Microsoft has now abandoned involved about 500 megawatts of additional capacity, but the original lease contract remains unaffected.

Nscale said the decision will not affect its current contract backlog of $103 billion. The company has signed related agreements with robotics company Figure and other customers, and is in talks with more potential clients.

The decision comes as concerns grow in the market about AI infrastructure construction relying too heavily on debt financing.

For computing leasing companies such as Nscale, CoreWeave and Nebius, continuously securing long-term contracts from large technology companies is an important condition for supporting financing of data center construction.

Nscale's revenue in the first half of this year was only $141 million, while its net loss reached $1 billion.

This is not the first time Microsoft has scaled back cooperation with Nscale. Earlier this year, Microsoft had already withdrawn from a $3 billion computing leasing deal involving a data center in Essex, England.

In addition, Nscale's flagship data center project in West Virginia is also facing construction delays and local opposition. The project is an important part of its $45 billion computing agreement with Anthropic.

Nscale is currently in talks with Anthropic to further expand cooperation, involving another 460-megawatt data center in the area.