Nscale's IPO will test Wall Street's appetite for concentrated AI bets

British neocloud Nscale is preparing to go public. The company plans to list on the NYSE, expects a $35 billion valuation according to the Financial Times, and is seeking to raise $3 billion in the offering, Bloomberg reported. The listing will test public investors' appetite for a stock whose revenue is tied primarily to two customers.

Contracts and customer concentration

According to its IPO filing, Nscale has amassed more than $103 billion worth of contracts. About 85% of that comes from two deals: a contract to supply Microsoft with $43.8 billion worth of compute through 2033, and a supply agreement worth $44.6 billion with Anthropic.

The Anthropic agreement is contingent on Nscale obtaining financing, and the AI lab retains the right to walk away from or cancel the deal if Nscale misses milestones that the filing explicitly calls “stringent.” The company was spun out of Australian cryptocurrency mining firm Arkon Energy two years ago.

Financials

For the six months ended June 30, Nscale reported revenue of $140.6 million, up from $10.4 million a year earlier. Net losses widened to $1.02 billion from $369 million in the same period.

Earlier this month, one of Nscale's major investors, Nvidia, agreed to provide $1 billion in convertible debt as part of a larger $3.1 billion financing deal. The startup was valued at $14.6 billion when it raised a $2 billion Series C led by Aker ASA and 8090 Industries.

Industry-wide interconnectedness

The customer concentration reflects how interconnected the AI industry has become. A recent paper by credit hedge fund Sona Asset Management, cited by the Financial Times, found that many AI infrastructure providers depend heavily on a limited number of customers. Nscale's competitor CoreWeave generates 67% of its revenue from Microsoft, while data center builder Applied Digital derives 67% from Oracle and 30% from CoreWeave.

Sona noted that such interconnectedness is not necessarily a bad thing, but a single setback or strategic shift by a major player can easily affect the entire industry.

Nscale operates data centers in Norway, Portugal, Texas and West Virginia. Its board includes former Meta executives Sheryl Sandberg and Nick Clegg, as well as former OpenAI executive Fidji Simo. Competitors include CoreWeave, Nebius, Lambda and Crusoe — the latter said last week it raised $3.9 billion at a $30.9 billion valuation.