Microsoft has decided not to expand a major artificial intelligence computing agreement with Nscale, the UK-based infrastructure company, walking away from an option that could have been worth tens of billions of dollars.

The decision, first reported by the Financial Times and confirmed by Reuters on Thursday, concerns extra capacity at Nscale’s data centre site in Ward County, Texas. Microsoft agreed in October 2025 to lease about 240 megawatts of capacity at the site, with an option to take more. The additional capacity was later reported to be about 500 megawatts. Microsoft chose not to take up that option, leaving Nscale to find other customers for the space.

Importantly, the move does not cancel what Microsoft has already agreed. Its existing contracts with Nscale remain in place, including statements of work signed between September 2025 and April 2026 worth up to about $43.8 billion through December 2033. The two companies had also agreed to deploy around 200,000 Nvidia AI chips across data centres in the United States and Europe.

The decision not to expand was made several months ago, before Nscale filed for a stock market listing in September. Nscale says its total contract value of about $103 billion is unchanged, and it is in talks with other customers for the unused Texas capacity. Reports say Anthropic, the company behind the Claude AI assistant, is among those in discussions over a deal worth nearly $45 billion.

It is the second time Microsoft has stepped back from an Nscale project. In October it pulled out of a separate deal to lease 50 megawatts of capacity at Nscale’s planned data centre in Essex, England, after delays pushed the expected power connection into the 2030s.

The decisions come as investors ask harder questions about how much the largest technology companies are spending on AI infrastructure, and how quickly that spending will pay off. Microsoft reported capital spending and finance leases of $45.2 billion in its September quarter, below earlier expectations of around $50 billion. Chief financial officer Amy Hood attributed the shortfall to delays in capacity deliveries from third-party providers, and Microsoft lowered its 2026 capital spending outlook to $170 billion from $175 billion.

Nscale, which is backed by Nvidia, is preparing for a planned listing reportedly valued at around $35 billion. The Microsoft decision is a setback for that plan, but it is not evidence on its own that Microsoft is pulling back from AI spending more broadly. The company continues to commit tens of billions of dollars a year to computing capacity, and the Texas decision looks more like project-specific discipline than a change of strategy.

What matters next is whether Nscale quickly finds a replacement customer for the Texas capacity, whether Anthropic expands its relationship with the company, and whether Microsoft applies the same scrutiny to other infrastructure partners.

Sources: Longbridge and Coinpaper.