According to the Financial Times, Nscale, the UK's highest-valued AI startup, failed to reach a potential new multi-billion-dollar deal with Microsoft, posing a fresh challenge to its plan to go public at a $35 billion valuation. Three people familiar with the matter said Microsoft declined to more than double the size of an existing data-center computing-power lease contract for facilities located in Texas.
This means Nscale must find new customers for the data center, or it could lose billions of dollars in future revenue.
Currently, discontent over the construction of AI data centers across the United States has become one of the reasons voters are choosing not to support Republican incumbents in Tuesday's midterm elections. Several incoming Democratic governors, including those in Texas, are calling for an immediate moratorium on data center development projects.
Previously, The Information reported that Microsoft cut its data center spending due to delayed deliveries from cloud services company IREN.
Microsoft said last week that, due to the delayed delivery of data center capacity it had planned to lease, its third-quarter capital expenditures were reduced by about $5 billion compared with previous expectations. Microsoft did not disclose the name of the "third-party" company responsible for the delay, but sources said one of them was Iren. This publicly listed cloud service provider was already under pressure from rising financing costs.
It is currently unclear what proportion of Microsoft's capital expenditure reduction this quarter is due to the delay of the Iren project. Microsoft has also signed capacity leasing agreements with several cloud service providers, including Nscale, Lambda, CoreWeave, and Nebius—because the pace at which Microsoft builds its own data centers cannot keep up with demand, it chooses to lease capacity from external providers.
This incident highlights that delays in data center construction can cause significant fluctuations in cash payments and revenue, further exacerbating the risks faced by a number of emerging cloud companies invested in by NVIDIA, including Iren.
Last year, Microsoft announced plans to invest $9.7 billion over five years to lease servers equipped with NVIDIA GPUs in data centers that Iren is building in Texas. At the time, Iren said these servers would come online in phases by 2026. However, people familiar with the matter revealed that delays at Iren's project in Childress, Texas, led Microsoft to postpone the related expenditures originally scheduled for the September quarter.
A Microsoft spokesperson said in a statement, "Our infrastructure strategy centers on flexibility and redundancy, combining Microsoft's own data centers, leased facilities, and strategic partnerships with third-party providers to ensure we can reliably and efficiently bring computing capacity online."