Microsoft has rejected an option to more than double its Texas data center contract with Nscale, according to sources cited by the Financial Times. The decision deals a fresh blow to Nscale's ambitions for a $35 billion IPO.
The news comes as Texas, until recently the fastest-growing data center market in the US, faces a political shift that could slow AI infrastructure projects. Democrat James Talarico won a US Senate seat and Gina Hinojosa won the governor's race, both campaigning on data center moratoriums.
Texas Data Center Boom Faces Political Headwinds
Texas has been ground zero for Big Tech's largest AI buildouts, but the blue wave in the midterms may jeopardize that position. Democrats will take control of the Texas House for the first time in 24 years, and Governor-elect Hinojosa has pushed for a full-fledged moratorium on new data centers.
Even before the election, Governor Greg Abbott had directed a key state regulator to halt data center permits in September, and developers reported that his office stopped responding to emails. Industry insiders at a recent conference in Ashburn, Virginia, lamented that Texas was the easiest place to build for years—until September.
Nscale's IPO Ambitions Hit a Snag
Microsoft's decision not to expand its contract with Nscale is a significant setback for the company, which had been aiming for a $35 billion IPO. The Financial Times reports that the rejected option would have more than doubled the existing Texas data center contract.
The move reflects growing caution in the AI infrastructure sector, where banks and lenders are becoming more selective about the projects they back. The scale of projects already underway in Texas is massive, including the Stargate Frontier data center in Shackelford County, projected to serve 1,820 megawatts, and Nexus Hubbard, planned for 6,400 megawatts.
