Microsoft has declined an option to more than double the size of its existing contract for computing power from Nscale at a data centre site in Texas, a deal that would have been worth tens of billions of dollars, the reported, in the latest sign of headwinds for so-called neocloud firms.
The deal relates to two sites in Ward County, Texas: a data centre with 500MW of power capacity on land owned by Nscale, and an adjacent site being developed by crypto miner Ionic Digital, where an additional 700MW is expected to come online, with Nscale having first refusal to find customers for the Ionic site.
In October of last year, Nscale said it would lease Microsoft about 240MW of computing capacity at the Ionic site, with Microsoft having an option to lease expanded capacity.
Customer deals
The option was for about 500MW, and involved leasing capacity at Nscale’s own site, the company told the .
Microsoft has now decided not to take up this latter option, the ‘s report said, citing unnamed people familiar with the matter.
Robotics company Figure said in September it would lease capacity at Nscale’s own site in Ward County, and the reported that other companies have also signed compute deals for that site, and that it is in talks with other potential customers for that site.
Power has not yet been secured for the Ionic site, where Microsoft still has the right of first refusal, according to Ionic’s SEC filings.
Microsoft’s decision comes after Democratic political candidates swept to wide-ranging wins across the US, including in Texas, after many had campaigned for stronger oversight of data centre construction.
Data centre pushback
But neocloud companies such as Nscale, Nebius and CoreWeave, many of which previously provided computing power for cryptocurrency mining, had already faced a rise in investor scepticism over their debt-fuelled construction plans, at a time of rising borrowing costs.
Microsoft last month pulled out of plans to participate in a major Nscale data centre in Essex, after the provision of power to the site was delayed.
Nscale is preparing an IPO this year.