Microsoft declines additional capacity option
British cloud provider Nscale, which plans to list on the New York stock market, has faced another setback. Another data center deal with its major customer Microsoft has reportedly fallen through.
On November 5, local time, the Financial Times and Bloomberg reported, citing multiple sources, that Microsoft had decided not to exercise an option to secure additional computing capacity at Nscale's Texas center in the United States.
Late last year, Microsoft signed a contract with Nscale for about 240 megawatts of computing capacity at the Texas data center. At the time, Microsoft also announced that it held an option to secure an additional 700 megawatts of computing capacity. Bloomberg reported that the relevant information had been removed from the original announcement on November 5. The Financial Times explained: “Nscale said this week that the option concerned leasing additional computing capacity at its own site and that its size was about 500 megawatts, not 700 megawatts. However, Microsoft declined to exercise the option, and the agreement between Nscale and Microsoft for additional computing capacity fell through.”
Microsoft's decision not to exercise the option appears to have resulted from delays in approval for the site's grid connection. Texas Governor Greg Abbott had initially actively sought to attract data centers with various tax incentives to promote the AI industry. However, Abbott stepped back by restricting data center grid connections and permitting amid strong opposition from residents concerned about electricity and water shortages and electricity bills. Democrat Gina Hinojosa, elected Texas governor in the midterm elections, made a halt to data center development a major campaign pledge and presented data center regulation as a central policy from the first day after the election.
Microsoft previously withdrew from a $3 billion contract to lease computing capacity at Nscale's data center in Essex, England, reportedly also because of delays in power supply and facility development. UK grid officials reportedly said the power needed for the Essex data center might not be available until the 2030s.
Possible implications for the listing
The succession of failed Microsoft deals is expected to hinder Nscale's initial public offering plans. As investors become more cautious about neocloud companies that have invested heavily in AI data center construction, difficulties with major customer contracts could weigh on revenue expectations and fundraising. According to Bloomberg, Nscale is pursuing a US listing at a target valuation of $30 billion. However, some investors have reportedly demanded that it lower its target valuation to $16 billion to $19 billion, citing developments including the recent collapse of Australian AI data center company Firmus's IPO plans.
Some sources expect little impact on the IPO plans, noting that the existing Texas data center contract with Microsoft remains in place and that Microsoft's decision came months before Nscale filed its IPO documents in September. According to sources, Nscale signed a $3.5 billion contract with humanoid robotics company Figure for the computing capacity at the Texas data center that it had offered as additional supply to Microsoft, and is negotiating with other companies.
Original Korean article: Money Today
English brief by Korea Wind Intelligence, koreawindintel.com
