Microsoft has declined to double its compute capacity agreement with Nscale in Texas, according to reporting from the Financial Times.

The FT reports that Microsoft has decided not to expand its lease agreement with Nscale in the Lone Star State, an agreement that would have been worth tens of billions of dollars in future revenue for Nscale.

Microsoft signed a contract in October 2025 with Nscale that would see it leasing ~230MW of capacity of Nvidia infrastructure at Nscale's data center, which is itself being leased from Ionic Digital in Barstow, Texas. This capacity has been executed, with Microsoft operating from the site, as per a LinkedIn post from Nscale CEO Josh Payne.

According to Payne, the company took the Ionic site from a steel shell to an operational AI data center in just nine months.

Microsoft previously reportedly had options for an additional 700MW at the site, though the FT reports that this was actually closer to 500MW and was for capacity at an Nscale-owned site in Ward County, separate from the Ionic Digital campus.

A person familiar with the matter has since clarified to DCD, however, that these discussions were actually held several months ago and thus had no impact on Nscale's total backlog, worth $103bn, of which Microsoft still accounts for around 40 percent.

The source told DCD that the Ionic Digital site planned to expand capacity by a further 466MW, bringing the total capacity at the site to close to 700MW. However, Ionic does not yet have permission to bring this power to the site, and thus Nscale offered Microsoft capacity at its self-owned data center on land adjacent to the Ionic Digital data center, which has behind-the-meter power.

It is this capacity that Microsoft declined to take up, but Nscale has since signed an agreement valued at $3.5bn with humanoid robotics company Figure to deploy 100,000 Nvidia Vera Rubin GPUs at its self-owned data center in Barstow.

Other undisclosed deals have been signed with other companies at the location, and sources said that the neocloud is already in talks with several other potential customers for the remaining capacity, including hyperscalers.

Should the Ionic Digital campus get its power connection agreement, Nscale retains the right of first refusal for that capacity as it is the customer.

Microsoft and Nscale still have a large partnership globally, including in the US, Norway, and wider Europe. Last month, Microsoft pulled out of Nscale's Loughton data center project in the UK due to grid connection delays, but Nscale is still pursuing the project.

Nscale is reportedly also currently in talks for a second $45bn agreement with AI lab Anthropic. Nvidia is reportedly serving as a financial backstop for the first deployment.

Nscale is in the process of launching an initial public offering, targeting a valuation of up to $35bn.

The company published its IPO prospectus in September, which noted that Nscale has five active data centers offering a combined 55MW, with 12 in various stages of development. Much of the neocloud's value at present comes from large capacity commitments with existing investment-grade customers, due to the capital-intensive nature of the data center buildout and the fact that many projects remain ongoing.

Texas is facing an ongoing data center moratorium. Following the US midterm elections this week, newly elected Texas governor Gina Hinojosa called for a longer data center moratorium in the state, followed by tighter regulation. Hinojosa campaigned against data center projects in the lead-up to the election.