Inside the make-or-break AI mega-project behind Nscale’s $35bn IPO

{"text":[[{"start":13.36,"text":"Nscale, one of the UK’s most valuable start-ups, is facing mounting setbacks and financing risks on a vast US data project that underpins its planned $35bn IPO."}],[{"start":24.62,"text":"The Nvidia-backed “neocloud”, which counts former Meta executive Sheryl Sandberg and ex-UK deputy prime minister Sir Nick Clegg as board members, is pinning its hopes on a rural site in West Virginia to be the main driver of future revenues."}],[{"start":41.38,"text":"Records reviewed by the FT show the “Monarch Compute Campus”, billed as a 2,250-acre site with up to 8GW of power, has been hit by building issues, local opposition and regulatory scrutiny. Satellite images show about 400 acres under development as of October 20."}],[{"start":59.76,"text":"Once promoted as a “net-zero” hydrogen-powered project, the campus will instead power its first 2GW phase with 864 gas-fired engines, after its original developer lobbied to change state law. Its permitted emissions would rank the site among America’s 20 biggest sources of greenhouse gases, alongside a slew of coal-fired power plants."}],[{"start":79.94,"text":"Anthropic has signed a $45bn deal to rent computing power from Nscale’s first data centre building in West Virginia, accounting for more than 40 per cent of the UK group’s $103bn revenue backlog. The two companies are in talks to double the deal with a second building — and possibly a third."}],[{"start":99.28,"text":"An EY report commissioned by Nscale estimates the first phase of the Monarch project, comprising three data centre buildings and 2GW of gas-fired power, will cost $69.2bn."}],[{"start":111.18,"text":"Nscale said in its IPO filings that it has not yet secured financing to build or equip the first building for Anthropic and the AI lab can walk away if that financing is not secured by a set deadline."}],[{"start":123.48,"text":"Problems around the development add to the uncertainty over Nscale’s proposed New York listing, at a time when global investors are growing wary of the debt-fuelled AI infrastructure boom."}],[{"start":134,"text":"The West Virginia site has become more important to Nscale after Microsoft this month pulled out of a deal to rent computing capacity at its planned data centre in Essex, when it emerged the UK site would not have power until the 2030s. A person familiar with the matter said the Essex site accounted for about $3bn of its revenue backlog."}],[{"start":155.24,"text":"Nscale, which made a net loss of $1bn on revenue of $141mn in the first half of 2026, is also constructing sites in Portugal, Norway and Texas. Including Monarch, it says it has “line of sight” to about 10GW of potential power capacity."}],[{"start":null,"text":"

"}],[{"start":173.4,"text":"Chief executive Josh Payne has tried to reassure staff by telling them demand for its services remained “insatiable”."}],[{"start":180.42,"text":"“Our projects are backed by long-term customer contracts, with a robust capital structure behind it,” he said in an internal memo last week signed off with a popular company slogan “LFG” — or “Let’s f****** go”."}],[{"start":193.36,"text":"Floods and a fightback"}],[{"start":195.04,"text":"A week before Nscale publicly filed for its IPO in September, West Virginia regulators issued the start-up with a cease-and-desist order halting further construction across the site for three days, after run-off from the massive project repeatedly flooded neighbouring properties, damaging residents’ homes."}],[{"start":212.24,"text":"Regulators had already ordered part of the site to stop work in July and the company has been issued with 10 notices of violation for inadequate stormwater controls."}],[{"start":221.4,"text":"“That’s a lot, that’s not a great track record. That’s one of the reasons people have become so frustrated,” said Nathaniel Hitt, senior scientist at West Virginia Rivers Coalition. “The surrounding community has been flooded multiple times this year as a direct result of the construction activities.”"}],[{"start":238.32,"text":"A person close to Nscale said the flooding in September was due to extreme weather, the company adhered to all issued orders and has fixed the damage caused."}],[{"start":247.08,"text":"The residents’ concerns include the 864 gas-fired generators, each roughly the size of a shipping container, that will power the Nvidia AI processors around the clock. Their 2.16GW of generating capacity is about the output of two large nuclear reactors. Some exhaust stacks will sit about 800 feet from the closest home."}],[{"start":267.04,"text":"Running at full tilt, the engines would be permitted to emit 271 tonnes of formaldehyde a year, according to a draft permit, about five times the 2024 emissions of the largest industrial source of the chemical reporting to the US EPA. Formaldehyde is known to cause cancer."}],[{"start":283.8,"text":"The engines would also emit 10mn tonnes of greenhouse gases a year, about as much as all the cars and trucks in West Virginia. A person close to Nscale said the site would on average run at about 55 per cent of its permitted capacity."}],[{"start":null,"text":""}],[{"start":297.52,"text":"The Monarch site still needs a final state air permit for the engines, and is seeking permits to fill about 28 acres of wetlands and nearly three miles of creeks to build the second and third data centre buildings."}],[{"start":308.72,"text":"Local groups pushed back against these plans at recent public meetings. “Our strategy is to use all legal means to slow it down,” said Elaine Matheny, an organiser of a local resident opposition group called Mason WV United. “Nscale is not that stable of a company.”"}],[{"start":324.3,"text":"Nscale said: “Under our new leadership team, we’ve raised our operations across the board, and the Monarch build-out is on track with our customer."}],[{"start":332.16,"text":"“We take our responsibilities to our neighbours seriously, and that includes advanced emissions controls designed to keep emissions well below federal standards, in many cases by 70 per cent or more . . . We’ll continue to be a dedicated, collaborative partner to the local community.”"}],[{"start":347.44,"text":"Dealmaking in West Virginia"}],[{"start":349.2,"text":"Residents have limited means to stop the project. A 2025 state law championed by state Governor Patrick Morrisey lets data centres generate their own power off the grid and strips local governments of the power to block or regulate them."}],[{"start":362.44,"text":"Dan Shapiro’s Fidelis New Energy, the Texas-based developer behind Monarch, helped push it through. Fidelis had unveiled the project in 2023 as a hydrogen-powered campus, as state law then allowed such off-grid projects to use only renewable power."}],[{"start":377.52,"text":"By 2025, Fidelis was lobbying to scrap that rule. Shapiro and other company executives donated to Morrisey. Their aims were included in a broader data centre bill that the governor signed beside the Monarch site. “You worked hard on this,” he said at the time. “Today is a big day for Fidelis.”"}],[{"start":393.8,"text":"Glenn Jeffries, a state senator who backed the law, described “a lot of long nights” discussing it with Fidelis. “Even before the bill passed, it was text, text, text, text,” he said, mimicking texting with his thumb."}],[{"start":412.2,"text":"Fidelis’ co-founder Bengt Jarlsjo praised the “truly transformative” bill. Fidelis later dropped its hydrogen plans and switched to gas."}],[{"start":416.16,"text":"Jeffries told the FT he spoke with multiple experts to learn what was important to data centre developers, adding he was “committed to improving the West Virginia economy”."}],[{"start":425.7,"text":"Morrisey did not respond to a request for comment. A person close to Nscale said Fidelis’s main aim was to lift the renewable-only requirement."}],[{"start":434.96,"text":"In March this year, all of the project pieces came together. Hope Gas, a large gas utility, announced a $250mn pipeline to supply the campus, and Shapiro’s company exercised a right to buy 700 acres that form the core of the Monarch campus for $15mn."}],[{"start":453.16,"text":"At the end of the month, Nscale stepped in to buy the project, paying $88mn in cash and $693mn in stock. The start-up valued the land at $91mn, and assigned $743mn to “power rights” for a site that does not yet have power."}],[{"start":471.32,"text":"As part of the deal, Shapiro and Jarlsjo joined Nscale. Shapiro is now the start-up’s chief power and energy officer, with Jarlsjo his deputy."}],[{"start":471.82,"text":"Getting IPO ready"}],[{"start":483.84,"text":"Nscale has grown rapidly since its founding two years ago. It was valued at $14.6bn in March in a funding round in which investors such as Nvidia, Nokia and Dell ploughed in $2bn."}],[{"start":495.74,"text":"Sandberg, who helped turn Facebook — since renamed Meta — into a social and online advertising giant, joined the board earlier this year. Two people familiar with the move said she has helped to professionalise operations ahead of an IPO."}],[{"start":509.8,"text":"One person said a few hires recommended by Sandberg were placed above existing staff, resulting in internal friction. Another person said Sandberg is an active board member and adviser to Payne."}],[{"start":521.04,"text":"Two former Meta executives — who both once worked closely alongside Sandberg — Clegg and Fidji Simo, also joined Nscale’s board this year."}],[{"start":529.42,"text":"The latest high-profile Meta recruit is Justin Osofsky, who joined as Nscale’s chief operating officer earlier this month. A person close to Nscale said Osofsky was hired after an open candidate search."}],[{"start":null,"text":""}],[{"start":542.72,"text":"This team must help Nscale navigate a difficult financing market, with investors widely selling off the debt and shares of more mature rival neoclouds like CoreWeave."}],[{"start":553.32,"text":"Three people familiar with the company’s financing plans said it was still targeting a $35bn valuation at IPO, though one admitted a recent sell-off could “reset valuations” across the sector."}],[{"start":565.88,"text":"The company and its advisers are also closely watching the results of the US midterm elections and Anthropic’s IPO, as they consider when to kick off the share sale."}],[{"start":575.96,"text":"“From my perspective, I am not worried about their strategy around whether they go public now or they don’t,” said Justin Hotard, chief executive of Nscale investor Nokia. “I’m very pleased with the work that Josh and the team are doing.”"}],[{"start":589.76,"text":"Asked this month about Nscale’s issues around getting data centres online, Jensen Huang, Nvidia’s chief, advised the group to “work around the clock,” adding: “Try less sleep, which is what I do.”"}],[{"start":601.48,"text":"Data visualisation by Steven Bernard in London. Additional reporting by Laura Pitel in Berlin"}],[{"start":610.32,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1793361109_1392.mp3"}