$103.4 billion in contracts, with Microsoft Corporation (MSFT.US) and Anthropic together accounting for 85%: How fragile is Nscale's (NSCL.US) IPO story?

Title context: $103.4 billion in contracts, with Microsoft Corporation (MSFT.US) and Anthropic together accounting for 85%: How fragile is Nscale's (NSCL.US) IPO story? Text: UK AI data center developer Nscale (NSCL.US) submitted its S-1 registration statement to the U.S. Securities and Exchange Commission last Friday, planning to list on the New York Stock Exchange under the ticker "NSCL." The most eye-catching figure in the prospectus is the $103.4 billion in total contract valuea company founded just two years ago that, in terms of contract scale, can already stand alongside some established infrastructure giants. However, if you break that figure down, the story looks completely different. According to the prospectus, Microsoft Corporation (MSFT.US) and Anthropic together account for 85% of Nscale's total contract value. Microsoft Corporation has signed multiple agreements with Nscale since late 2025, with a total contract value of approximately $43.8 billion, extending through 2033. Anthropic signed a $44.6 billion compute leasing agreement in August of this year, covering server racks and equipment at the flagship West Virginia data center. Customer concentration is even more starkly reflected on the revenue side. In the first half of 2026, Nscale's single largest customer accounted for 52% of revenue, and the company declined to disclose the customer's name in its prospectus. Looking further back, Microsoft Corporation contributed approximately 73% of Nscale's revenue for the full year 2025. The company even wrote in its risk disclosures that "a substantial portion of our revenue is driven by a limited number of customers." This structural dependence is not unique to Nscale. Estimates from relevant institutions in March of this year showed that Microsoft Corporation and Meta (META.US) account for roughly half of Nebius's (NBIS.US) annual sales; Microsoft Corporation contributed approximately 67% of CoreWeave's (CRWV.US) revenue in 2025. These neocloud service providers generally try to use "customer diversification" to hedge against market skepticism about their over-reliance on Silicon Valley giants, but the actual data does not support this narrative. Of the hundred-billion-dollar contracts, no more than $2.6 billion is actually running Another notable point: of the $103.4 billion in total contract value, only $2.6 billion was in "active" status as of the end of Augustmeaning already built and generating revenue. This means the conversion rate of contract value is less than 2.5%. The vast majority of the remainder consists of multi-year commitments on paper, waiting to be realized in stages after data centers are completed, chips are in place, and power is connected. Nscale's financial data for the first half of the year also deserves closer scrutiny. Revenue was $140.6 million, up more than 12-fold year-over-year, but net loss reached $1.02 billionmore than seven times revenue. An even more critical figure: the cost-to-revenue ratio has inverted, with cost of revenue for the first half at $189.6 million, exceeding revenue itself. The company could not even achieve gross profit. Beyond operating cash flow pressure, the balance sheet is also under strain. As of the end of August, Nscale's liabilities exceeded $8 billion, and this figure does not yet include financing provided by Dell Technologies, Inc. Class C (DELL.US). The prospectus also contains a noteworthy passagemanagement had "substantial doubt" about the company's ability to "continue as a going concern," citing projected funding needs that depend on debt and equity financing not yet committed. Although management ultimately concluded that this risk could be mitigated by delaying or reducing capital expenditures, the appearance of "going concern" language in an IPO filing itself sends a significant signal. NVIDIA Corporation: shareholder, supplier, or implicit risk guarantor The relationship between Nscale and NVIDIA Corporation (NVDA.US) goes far beyond what the words "chip supplier" can capture. NVIDIA Corporation holds more than 5% of Nscale's issued share capital. On the supply chain side, NVIDIA Corporation is the exclusive source of GPUs for Nscale's data centers, and the two parties have signed a capacity leasing agreement totaling $1.2 billion. On the financing side, NVIDIA Corporation has participated in multiple rounds of Nscale funding, including a $3.1 billion convertible bond issuance earlier this month, of which $1 billion was subscribed by NVIDIA Corporation. On the credit side, NVIDIA Corporation agreed to provide up to $860 million in obligation guarantees for Nscale's lease agreement at a facility in Ward County, Texas. This multi-dimensional entanglement constitutes a structure worth being wary of: NVIDIA Corporation is simultaneously Nscale's shareholder, its supplier, and the backstop for its lease obligations. Nscale acknowledges in its prospectus that its close relationship with NVIDIA Corporation "does not eliminate supply chain risk"whether the latest AI accelerators can be delivered to data centers on time remains uncertain. The specter of "circular deals" Nscale's case, viewed against the broader backdrop of the AI infrastructure industry, points to a wider problem. There are currently a large number of "circular deals" in the AI supply chainAI labs commit to purchasing compute from neocloud service providers, neocloud service providers purchase chips from NVIDIA Corporation, and NVIDIA Corporation then makes equity investments in these AI labs and neocloud service providers. Capital and orders circulate within the same closed loop, ultimately driving the simultaneous inflation of valuations and contract scales for all parties. According to statistics, the total value of AI investments, financing arrangements, and cooperation projects in which NVIDIA Corporation participates has exceeded $750 billion. NVIDIA Corporation CFO Colette Kress has said that demand from AI labs receiving NVIDIA Corporation funding accounts for roughly one-quarter of the company's business next year. The Bank for International Settlements specifically mentioned this dynamic in its annual report this year. Some analysts have compared it to the "circular chain" transactions in the U.S. savings and loan crisis of the 1980sinterconnected transactions at the time masked real risks, amplified systemic vulnerabilities, and ultimately led to the collapse of about one-third of savings and loan institutions. Back to Nscale itself. Its $44.6 billion contract with Anthropic is not set in stone. The prospectus explicitly states that the agreement comes with milestone conditions and strict compute consistency requirements, and that the contract can be terminated if Nscale fails to meet them. An even more direct signal is that Nscale admits it has not yet obtained binding financing commitments for the Anthropic contract. The company plans to build an 8-gigawatt data center campus in West Virginia, with the first 2 gigawatts of compute expected to come online only in 2028leaving a considerable runway before the contract begins generating revenue. Meanwhile, at least one marquee customer has already pulled back. In April of this year, OpenAI withdrew from the Stargate infrastructure projects with Nscale in Norway and the UK. Microsoft Corporation took over the Norway data center, while Alphabet Inc. Class C (GOOGL.US) plans to replace OpenAI's role in the UK project. There were also earlier reports that Nscale had held talks with TikTok parent ByteDance about compute supply, but Nscale's S-1 filing makes no mention of this. Nscale's IPO targets a valuation of $35 billion, more than double its $14.6 billion valuation from its funding round in March of this year. Based on annualized revenue of $140 million for the first half, this valuation corresponds to a price-to-sales ratio of approximately 50x. Nscale's IPO underwriters include Goldman Sachs Group, Inc., JPMorgan Chase, and Morgan Stanley. But the current market environment has changed. Nscale's listed competitor CoreWeave has fallen more than 10% over the past month, while Nebius is roughly flat. Rothschild & Co. Redburn initiated coverage of Nscale's listed competitors on Monday with a "sell" rating, warning that these companies face high leasing costs and reliance on debt financing, and that sales growth is "closely tied to the availability of capital, so growth cannot be taken for granted."