By Preetika Parashuraman and Disha Mishra
Nov 5 (Reuters) - Microsoft will not exercise an option to more than double the size of its existing agreement with AI cloud provider Nscale to rent more computing
power at a Texas data center, according to a person familiar with the matter.
The Financial Times, which first reported the news on Thursday, said a potential deal extension would have been worth tens of billions of dollars for Nscale.
The person, who declined to be named because the matter is confidential, said Microsoft's decision to not expand the contract was made several months ago, before Nscale filed for its IPO in September, and added that its existing Texas contract with Microsoft was not affected.
Investors and data center developers are grappling with growing uncertainty in Texas after Gina Hinojosa's election victory, as the governor-elect has pledged to halt new projects until the state legislature passes laws governing the industry.
The companies struck a deal last year for Nscale to deploy around 200,000 Nvidia AI chips under an expanded agreement with Microsoft across its data centers in Europe and the US.
The development comes weeks after Microsoft pulled out of a deal to anchor Nscale's flagship data center project in Loughton, Essex, after power connection delays pushed its expected supply date into the 2030s.
Nscale had said in its IPO filing that between September 2025 and April 2026, it signed statements of work with Microsoft worth up to about $43.8 billion through December 2033, excluding optional extensions.
The source said that Microsoft's decision to not exercise the option has no impact on Nscale's total contract value of about $103 billion, as disclosed in the IPO filing.
Nscale was already in discussions with several major customers for the rest of the data center capacity in Texas, the person said.
Microsoft and Nscale did not respond to a request for comment outside business hours.
Reuters and others reported last month that Nscale was in talks to sell AI computing power to Claude-maker Anthropic in a new deal that could be worth about $45 billion.
(Writing by Shubham Kalia in Bengaluru; Editing by Janane Venkatraman and Mrigank Dhaniwala)
