AI cloud provider Nscale's debt surges ahead of listing, deepening reliance on NVIDIA Corporation (NVDA.US) for funding and chip supply

Title context: AI cloud provider Nscale's debt surges ahead of listing, deepening reliance on NVIDIA Corporation (NVDA.US) for funding and chip supply Text: Nscale, a UK-based artificial intelligence (AI) cloud computing services provider and data center developer, disclosed in its latest regulatory filing ahead of its initial public offering (IPO) that its debt has risen sharply and that it will still need to raise substantial funds to fulfill customer contracts, while its reliance on NVIDIA Corporation (NVDA.US) is also greater than previously disclosed. With the sudden departure of NVIDIA Corporation Chief Executive Officer Jensen Huang, the market is paying increasing attention to whether the AI chip giant will adjust its financing support for emerging AI cloud service providers. Nscale filed an amended S-1 registration statement for its listing on Thursday evening, nearly two months after the company first disclosed its IPO plans. The filing shows that, as of September 30, Nscale's debt had reached US$5.5 billion, a nearly 39-fold surge from US$137.4 million at the end of June. At the same time, Nscale disclosed more details about NVIDIA Corporation's investment. As a major shareholder of Nscale and a key equipment supplier for its AI data centers, NVIDIA Corporation committed US$2 billion in a convertible financing agreement worth more than US$3 billion reached in September this year, while Nscale's previous listing filing disclosed only a US$1 billion investment commitment from NVIDIA Corporation. However, Nscale emphasized in the latest filing that NVIDIA Corporation is not obligated to provide it with priority supply, preferential pricing, or early access to new products. Nscale declined to comment beyond the listing filing, and there is currently no guarantee that it will ultimately proceed with the IPO. Nscale's financial condition and its growing reliance on NVIDIA Corporation highlight the risks faced by emerging AI cloud service providers as they rapidly expand computing infrastructure. Such companies typically need to invest huge amounts of capital to purchase AI chips and build data centers, and then rent computing power to AI developers in order to achieve long-term revenue growth. However, as investors become increasingly cautious about the sustainability of the AI investment boom, and following Jensen Huang's sudden departure this week, the market has begun to focus on whether NVIDIA Corporation will reduce its financing support for these emerging cloud service providers in the future. Despite financing pressure, Nscale has made some progress in fulfilling existing customer contracts. According to the latest listing filing, the contract value corresponding to the computing capacity of Nscale's data centers currently in operation is approximately US$6.4 billion, up from US$2.6 billion at the end of August. However, compared with the company's total contract value of approximately US$106 billion, the contract value corresponding to currently operational computing capacity still accounts for only about 6%. The additional computing capacity mainly comes from a data center in Texas, funded by Microsoft Corporation (MSFT.US). By contrast, Nscale's large-scale computing power supply contract with Anthropic, the developer of the Claude chatbot, is becoming the main source of the company's future financing needs and project execution risk. Nscale said it must currently obtain substantial additional financing to purchase NVIDIA Corporation equipment for the Anthropic data center project, or it may face penalties for contract breach. As Nscale's largest customer, Anthropic has signed a six-year contract with the company worth a total of US$44.6 billion. Under the agreement, Nscale will provide Anthropic with 460 megawatts (MW) of computing capacity, with the related facilities scheduled to begin operations gradually by the end of 2027. To date, Nscale has committed approximately US$1 billion to build the data center serving Anthropic in Monarch, West Virginia. However, to complete the entire project, the company still needs at least US$30 billion in additional funding. Under the contract terms, Anthropic has the right to terminate the contract if Nscale cannot obtain the required financing or fails to deliver the project on time. In addition, Anthropic is in talks with Nscale about using the second building in the Monarch data center campus, meaning the scale of future cooperation between the two parties may still expand further. Nscale noted in its listing filing that, mainly driven by equipment procurement needs, the capital expenditure commitments the company expects to bear in the near term have increased significantly. However, the company cannot guarantee that it will be able to obtain additional funding when needed, nor can it guarantee that financing terms will be acceptable to the company. In addition to Anthropic and Microsoft Corporation, Nscale is also expanding other customers in the AI field. The latest listing filing further disclosed the company's computing power supply agreement with Figure AI, a developer of humanoid robots. Under the agreement, the contract, worth approximately US$3.5 billion, will be paid half in cash and half in equity, namely approximately US$1.75 billion in cash and the remainder in Figure AI equity. However, the relevant transaction terms remain subject to Figure AI's valuation. For Nscale, although the scale of its massive customer contracts reflects strong market demand for AI computing power, how to raise sufficient funds, complete data center construction on time, and convert signed contracts into actual revenue remains a key issue it must prove to investors before listing. In particular, with NVIDIA Corporation serving as both a core equipment supplier and an important source of financing support, changes in the chip giant's future strategy and capital allocation could have a significant impact on Nscale's business expansion.