The NScale IPO | A Neocloud S1 Breakdown

0:00I was today years old when I found out what a neocloud is. Just kidding, kind of. And scale, one of the fastest growing NeoClouds out there, think of them as a core weave competitor, has filed to go public on the New York Stock Exchange. And boy, oh boy, do I have a story for you. This is filled with over$100 billion in future commitments from the likes of Anthropic and Microsoft. And a whole lot of, I really hope this works out because we don't fully own anything and we're just assembling it type of stuff. But hey, welcome to almost 2027. What? We're on a ride here. This is the N-Scale IPO S1 breakdown.

0:38Is this thing on? Yesterday's price is not today's price.

0:53I'm going to be honest with you. The dusty-ass Lenovo ThinkPad I wrote this on, it's an X1 Carbon, by the way, not to brag or anything, is older than Nscale, the two-year-old UK NeoCloud that has somehow signed more than$100 billion in take-or-pay contracts with the likes of Anthropic and Microsoft. They are also gross margin negative, a recovering crypto miner, and participate in the circle jerk of NVIDIA's vendor financing. Nscale filed to list the New York Stock Exchange under the ticker NSCL, which I can't help reading as Npopsicle. The price range is still blank, but the Financial Times reports the company is targeting a valuation of about$35 billion.

1:32In March, its last private round valued at around$14.6 billion, according to the information. So, from their S1, Nscale is a full-stack AI hyperscaler building the engine of super intelligence. That is so vague I had to read it twice. Woo! Okay, well, if you like Florida Swampland, I've got a negative gross margin neocloud to sell you. To be fair, the contracts are real. Microsoft has signed up for as much as$43.8 billion through 2033, and Anthropic for as much as$44.6 billion, which pushes total contract value to$103.4 billion, which was not a typo. Only$2.6 billion of that is live today, so about 2 % of that committed value.

2:16And most of the rest depends on data centers, power plants, and GPUs that haven't been built or fully financed yet. The whole deal comes down to three questions. First, is this opportunistic supply and demand capture or really a durable company? Second, is this the core weave of the UK that would help us understand it a lot better because they have a public track record now? And three, what's a commitment worth? But first, WTF is a NeoCloud. So a NeoCloud is a company who's in the business of renting out GPUs for AI. It buys chips from NVIDIA, installs them in data centers with enough power and cooling to keep them from melting and charges customers by the hour to use them.

2:52Nscale prices its product on a per GPU per hour basis, the same way that CoreWeave, Nebius, Crusoe, and Lambda do. Those are four companies that they actually name in its S1 as primary competitors, along with SpaceX, which I will get to later. The easiest way to place a NeoCloud within the extremely confusing AI ecosystem is by what it sits in between. So NVIDIA makes the shovels, hyperscalers like Amazon, Google and Microsoft run general purpose clouds that do a bit of everything, including AI. And a NeoCloud buys the shovels, digs the mine and rents out digging time to anyone who needs a lot of it quickly, which is actually like everyone right now, including the hyperscaler.

3:32So Microsoft is one of Nscale's two biggest customers, even though Azure also kind of sort of shows up in the filing as a competitor. That's always interesting. Hyperscalers rent from NeoClouds because the bottleneck in AI has moved from chips to electricity. Nscale says it in their S1. Access to power and its delivery costs have emerged as the primary gating factor for AI capacity expansion. If you already have a site with a few hundred megawatts hooked up, you can bring a GPU cluster online faster than a hyperscaler waiting in line for a grid connection. In the short term, a NeoCloud is selling speed to power as much as it's selling compute.

4:09A quicker refresher on the five layers of AI and which one end scale actually touches. So it helps to think Think of the AI stack and these layers. So first you have power, the electricity itself, from the grid or generated somewhere on site. Maybe you're near like a river, huh? How about that Hoover Dam? Land and data centers, the buildings, cooling systems, and grid connections that turn power into usable space for servers. You get the chips, which are the GPUs, plus the networking gear that lets thousands of them act like one machine at the same time. Cloud software, that's the layer that schedules jobs, monitors health, and swaps out broken nodes so customers never see them.

4:44and then the model and the app. So that's the Anthropic OpenAI and everyone building on top of them. So NScale's pitch is that it owns layers one through four that I just mentioned, end to end, which it calls, quote, power to token. The NScale acquisition, which closes with this IPO, is the company's bet on pushing further into layer four, the software portion. However, the filing is more modest about ownership, quote unquote, ownership. What do you own here? Once you get to the risk factors, they say, we do not manufacture the components we use to build the technology infrastructure underlying our platform.

5:17So the chips come from NVIDIA, the generators from Caterpillar, and a lot of the buildings come from somewhere else. Of end scale, 17 data center sites, seven are wholly owned, nine are co-load, co-location, I like to say co-load, so it sounds like an insider, which means renting space inside someone else's facility, and one is leased. Measure by contracted the capacity about one gigawatt of the 137 gigawatts sit at own sites, but the capacity that is live and generating revenue today is mostly in colos and lease locations. So for now, the vertical integration is more assembled than own. Here's an analogy for you.

5:54So landlord versus hotel, it kind of helps describe N-Scale infrastructure and the N-Scale cloud because N-Scale infrastructure is the landlord business. A giant customer like Microsoft or Anthropic reserves an entire dedicated cluster, often a whole building's worth of GPUs for about six years at a fixed price. N-Scale handles the land, the power, the building, the hardware, and the tenant runs its own workloads on top, and they will fix the bathroom if it breaks. N-Scale Cloud is the hotel business. Smaller customers such as AI startups and enterprises, they check in for fine-tuning inference or a few hours of on-demand GPU time, and N-Scale handles everything up to the model.

6:31Any scale fits here, what they just bought. So in theory, this is where the higher margins are because you're selling software inconvenience on top of the hardware. Now, almost all the money today is in that landlord business. The first one infrastructure makes up the vast majority of the one hundred and three point four billion in contracted value on demand usage is not currently a material component, they say, of revenue. And the filing never breaks out how much revenue N-Scale Cloud brings in. They are very much selling you the dream on where the cloud biz can go. They say through N-Scale Cloud, we will unlock high margin full stack AI cloud revenues while building a more diversified customer portfolio in frontier labs, developers, AI natives and enterprises.

7:10So this is an admission that their margins suck right now and they are very much concentrated amongst their customers. But it can change if things go to plan and their second act goes well. How do take or pay contracts work? Take or pay contracts come from the natural gas and pipeline world and the concept carries over really well for companies like a core weave or an end scale who are also selling access to refined power and capacity the customer reserves a set amount of capacity at a fixed price per gpu hour and they get billed monthly for that reservation whether they use it or not end scales version usually includes a big prepayment at signing which averages 23 of contract value and that cash helps fund the build which is super key to this because they haven't built everything yet.

7:55The catch is when the meter starts. So when does it turn into revenue, right? So under N-Scale's contracts, the term begins only once a GPU cluster is delivered and accepted. Until then, a signed contract is a promise on both sides. N-Scale has to get the power online, finish building, receive the chips, and pass testing before a single dollar of that contract will count as revenue. And if it's late, some customers can walk away from the unfinished piece and Anthropoc can do so without liability. So that's why only $2.6 billion of the$1.3.4 billion is quote-unquote lot. Maximoor, get your Maximoor here.

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11:40Now that we're on the same page, we can actually go through the numbers. By the way, one of the only charts they included in this, I think someone just did at their desk using Microsoft Sheets or something. They didn't use a designer. They didn't use ChatGPT or Anthropic. I love it. $141 million for the first half of 2026. So the first six months. That was up a big number, 1 ,252 % year on year. It was up from only$10 million in the first half of 2025. Full year 2025 was merely$33 million, up 73 % from$19 million in 2024. You got to remember, though, in 2024, hosting a crypto miner accounted for 93 % of their revenue.

12:13So that business ended in December 2024, making 25 the first full year as an AI company. Their gross margin negative cost of revenue was$190 million against$141 million of revenue, about negative 35 % before depreciation. After depreciation, because they got a lot of chips,$174 million layered back on gross margin gets to negative 159%. That is gross margin, not profit margin. Net loss, negative$1 billion and change. It's so big, I'm just going to say and change. So$457 million of that is non-cash, I have to admit. And that's from marking up warrants held by investors because, hey, company got more valuable.

12:52Congrats. You get to put a huge non-cash expense on there. Stock comp was$114 million. Got to pay the people or 81 % of revenue. Adjusted EBITDA, about negative$200 million, a negative 142 % margin. can't adjust away to profitability here. Operating cash flow. This was positive, positive$1.7 billion. So almost all of it is customer prepayments. Deferred revenue went from $2 billion to$6.5 billion in six months. CapEx,$3.2 billion in the first half. So outstanding commitments are about$29 billion,$24 billion of technology equipment,$3.5 billion of data center construction, and$1.4 billion of co-location leases.

13:32Cash,$1.5 billion on the balance sheet. That's only$137 million at June 30th. But don't be fooled. The debt is showing up soon. Since June 30th, they've drawn$830 million on a revolver, signed$4.2 billion of new facilities, started$2.5 billion of Dell equipment financing, and raised$3.1 billion of convertible notes. I've said the contracted value a bunch of times. They want you to remember that headline of$103.4 billion. But remember, only$2.6 billion is active. That 103, though, they were only at$38 billion in December. The weighted average contract life is 5.7 years. You got to love that. Microsoft and Anthropic together are about 85 % of that$103 billion total.

14:15Customer concentration. The largest customer was 52 % of first half revenue and 73 % of 2025 revenue. GPUs. They have about 25 ,000 active, 461 ,000 active and contracted. Wow. That's a big number. About 5 % of contracted GPUs are live today. And similarly, they have 1.4 gigawatts of active and contracted capacity with a line of sight to get to 10. Remember that because the CEO has his comp link to that. So employees, they have about 1 ,000. That was up from 40 at launch two years ago. Annualized first half revenue per employee. We can ignore it. It's 280K right now, but it's about to blow up after they get some of this stuff online.

14:55That will change very fast once they can recognize revenue when the clusters are live. So the offering, once again, New York Stock Exchange, ticker Popsicle, no, it's NSCL, price range and share counts are blank for now. Goldman and JP Morgan are lead left, followed by Morgan Stanley, and then 23 banks. It's a pool party. What is great? Jump on in. It includes a retail trend for UK investors, which is an English company that will re-register as N-Scale PLC with one vote per share. And NVIDIA shares, which we'll get to here, are non-voting. The house that Anthropic built and NVIDIA financed. Here's a riddle for you.

15:31What's a contract worth? Ask 10 people or 10 auditors, you'll get 10 answers. Because it depends on how likely you think they are to fill it. N-Scale's headline number, remember we keep saying it's over$100 billion total contracted value. It means revenue over full term of every single signed deal. So think of that$103 billion as a ceiling. It's the maximum amount they could possibly recognize and collect. it's what they get if everything goes to plan and every cluster gets built two customers make up most of that ceiling microsoft contracts provide for payments of up to approximately 43.8 billion through 2033 and anthropics for up to approximately 44.6 billion together yeah like i said 85 you keep seeing the words up to up to up to okay so how much should i value this at and the deals especially the Anthropic one, it's brand new.

16:22Total contract value was$38 billion in December, so more than half of the backlog was signed in the last eight months before this filing. They're going public at a good time from this momentum. The Microsoft contract does have fewer exits than the Anthropic one. Each Microsoft GPU term runs five to six years from when Microsoft accepts the cluster. The filing only describes termination for cause, like an uncured breach or insolvency. There's nothing about walking away for convenience, like a lot of these other AI deals that we see get done. The Anthropic contract, though, comes a lot of ways out.

16:52So the Anthropic deal was signed August 25th, less than a month before this S-1 filing. And all of it runs out of one place. So in March 2026, we took a decisive step to secure long-term leadership in the U.S. AI infrastructure market by acquiring 100 % of the share capital of American Intelligence and Power Corporation, which includes the Monarch Compute Campus in Mason County, West Virginia. Folks, we're big in West Virginia. Cue the John Dever. Anthropic can terminate a tranche without liability if it's delivered late and supply chain delays only count as an excuse in narrow cases. It can also walk if uptime falls below set thresholds and end scale still has to go find the money to build it out.

17:35They say, as of the date of this prospectus, we have not obtained binding commitments for any of the financings required to fund performance under the Anthropic Services Agreement. And all such finances remain in process. So not to be a pessimist here, but the single largest contract in the backlog runs through a campus that isn't built on power that isn't generating yet, funded by money that hasn't been raised. Contracts to buy chips, but no contracts to get them. Think about it this way. Every GPU N-Scale deploys is made by NVIDIA and bought through third-party suppliers. Then there's this. We currently have no long-term contracts or arrangements with our suppliers that guarantee capacity or the continuation of any particular payment terms.

18:18Okay, you've signed up people to buy stuff from you if you have it, but you don't have contracts to secure that you'll have it. That was confusing, but I think you get what I mean. That's what makes the Anthropic delivery clauses bite because the customer can leave if the chips show up late and nothing on the supply side guarantees that they're going to show up on time, right? So anytime I see NVIDIA as an investor, I pull out my tinfoil hat and put it on my head. Conspiracy Carl is here. So is this just vendor financing? Vendor financing is when a supplier puts money into a customer so the customer can keep buying its shit.

18:49NVIDIA shows up on every side of Nskill, makes the GPUs, is invested about$2.2 billion, including$1 billion that closes in November. It guaranteed up to$860 million of rent on a Texas data center, and it rents$1.2 billion of GPU capacity back from N-Scale as a customer. So they are N-Scale supplier, investor, guarantor, and customer. NVIDIA vouched for the rent on a building that would be filled with its own chips. It's kind of like your dad co-signing up for your college apartment. And N-Scale paid for the favor in warrants. Those warrants have since gone up in value, which is a big part of that 457 million non-cash loss that they had to book this year.

19:27Still, NVIDIA's 2.2 billion is small, next to the 24 billion N-Scale has committed to spend on equipment. Customer prepayments and debt are doing a lot of the funding here. So it's good to get paid early. Often our partners are also our customers, investors, and suppliers, they say in the S-film. And as they say in Game of Thrones, often your sister is your lover who's also your cousin. Customers are finding a big chunk of the build. When a customer signs, N-Scale usually collects about 23 % of that contract up front. And that's why deferred revenue went from$2 billion to$6.5 billion in six months.

19:57And why operating cashflow was a positive$1.7 billion while the company still lost a billion bucks. Gap treats a prepayment that big as a loan from the customer. So N-Scale books interest on it. Of the$95 million of interest expense in the first half, only about$12 million was on actual debt, which is important to note. Real debt was just$137 million at June 30th. But like I said, it is arriving quickly. since then they've drawn 830 million on a revolver signed that 4.2 billion of new loans started 2.5 billion of equipment leases with dell and raised 3.1 billion of convertible notes the early loans from one of their investors cost 13 to 15 percent i had to hire eight well the newest our investment grade at sofer plus 2.375 that would be better oh some good news they say we did not have during the periods presented and we do not currently have any off balance sheet financing arrangements.

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22:21Woo! Everything a scaling company needs. They've got 5.0 stars on G2. They're backed by A16Z and Sequoia. Heard of them. And CPA-led implementations that get you live in 45 days. That is simply unheard of in the ERP space. If your books aren't running as fast as your business, check out Rillet. Book a demo at Rillet.com slash CJ. That is R-I-L-L-E-T dot com slash CJ. That's me. Is this medium-term arbitrage or is this a durable company? So as you know, right now, demand for AI compute is bigger than the supply of powered data centers. A company that shows up with land and power during a shortage can sign a ton of contracts fast, which is how the backlog nearly tripled in eight months.

23:07The real question is what's left when the shortage eases and the filing seems to clue us in. They say,

23:27So they're basically Walmart, right? Low cost every day. Most of that edge is power. N-Scale says its sites often buy electricity about 70 % cheaper than major US markets, and new grid connections and generation take years to line up. Being cheap, though, doesn't lock people out, because the risk factor says that they may encounter relatively low switching costs at the end of their contractual commitments. N-Scale's answer is, hey, we also have software that should help with vendor lock-in, and that's through N-Scale Cloud, which once again, they got through the$1.7 billion AnyScale acquisition, but none of that is truly tied to the backlog yet.

24:04At least the contracts match the hardware, right? The average contract runs 5.7 years in N scale, depreciates its GPUs over five to six years with no change to that schedule disclosed. The customer pays for roughly the whole useful life of the chip and anything after that depends on signing someone again. So the renewals will matter. They really will. Some potential red flags here. This is always fun. Number one, there's going concern language in the notes. Management initially flags substantial doubt about the company surviving because the plan depends on financing it hasn't secured yet. Its fallback is to cut catbacks, which would mean late deliveries, which would also let Anthropic, who gives them the monies, cancel their tranches.

24:43I think you kind of have to put that in, though, when you're burning this much cash. Number two, the accounting controls and material weaknesses. Enscale doesn't have enough accounting staff or documented controls yet, and the fix runs through 2027 that they've outlined. Their auditor, KPMG, only started this year and had to disclose an independence issue of its own. Three, two customers are about 85 % of contracted value. Microsoft is up to$43.8 billion. Anthropic is up to$44.6 billion. And the Anthropic buildout has no committed financing. Four, a lot of the growth was paid for in stock. The West Virginia campus, the Norway joint venture buyout, any scale in the convertible notes add up to roughly$7.3 billion of equity issued or promises here.

25:23And some of that hasn't hit the cap table fully yet. It hasn't been fully diluted. So keep an eye out for that. Number five, and you probably know this, some neighbors just don't want a data center in their backyard. The filing admits N-Scale has faced local community opposition at some sites. In New York, just paused big data center approvals. From the founder's letter, quote, we couldn't just build at scale. We had to build responsibly. Get off my lawn. Though, they get the green light on the following. No off balance sheet financing, no dual class structure, no material litigation, no changes to how they depreciate their GPUs.

25:56So N-Scale depreciates the chips straight line and it doesn't seem like they've had any monkey business with that. Some other companies have played it fast and loose. Cap table. There's one class of voting shares after the IPO at one vote per share. And Nvidia's stake sits in a separate class that can't vote. The ownership percentages are still blanks. The filing tells us who the big holders are, but not how much each one owns. And I hadn't heard of any of these investors before. Three names clear the 5 % bar. Acre, it's a Norwegian industrial investment company. They partnered with them on the norway location santan capital sand ton sand ton capital a new york credit fund it went and scale money at 13 to 15 interest in 2023 and 2024 and collected a bunch of warrants on the way paladin capital a jersey trust that ceo josh pain set up the old parent is in here too so shareholders of archon sounds like akon or akron ohio energy the australian bitcoin data center company Nscale was spun out of, swapped their Archon stock for Nscale stock in May.

27:02Okay, so this one's fascinating. How does the CEO get paid? So Payne is 32. What am I doing with my life? And he holds options on 7.4 million shares at an exercise price of like zero, half best over time and the other half best as the company's valuation passes 5 billion, 10 billion and 20 billion. In August, the board let him exercise early. So he took 2.5 million shares in September. He also got an IPO award of 19.1 million shares worth about$350 million at Grant and equal to roughly 2.5 % of the company. Invest through 2028 and 2032 and only if he hits targets, which are 40 % on stock price targets, 40 % related to megawatt deployed under the company's big customer contracts, and 20 % on other operating goals.

27:48Almost half the CEO's IPO awards depend on how many megawatts he gets built, which makes a ton of sense because it's the only way the contracts get fulfilled and the company makes money. Who's on the board? The outside directors include Sheryl Sandberg, Nick Clegg, Susan Decker, and Fiji Saimo, who joined in September after leaving her operating role at OpenAI. At the Series C price of$20.39, Sandberg's restricted shares are worth about$39 million. Decker's about$23 million and Klegg's about$19 million each, vesting over four years. Wow, can I be on your board? Is this the CoreWeave of the UK?

28:25So Nscale names CoreWeave as its first competitor and CoreWeave is the obvious comp. It's also a NeoCloud that also started out in crypto, rents NVIDIA GPUs by the hour on long take-or-pay contracts and leaned really hard on Microsoft, which was 62 % of CoreWeave's revenue the year before it went public. It also went out at exactly the same valuation and scale is reportedly targeting 35 billion so if we compare them trailing 12 month revenue and scale is a lot smaller they're only at 163 million core weave is already at 1.9 billion in real revenue um if you compare the backlogs 15.1 billion for core weave 103.4 billion for end scale so that's a bit different though average contract length core weave four years and scale 5.7 years target valuation both about 35 but remember core weave did not actually price 35 they had to downsize it to 23 billion and they've been up and down and all over the place since so nscale is asking for the same price with about a 12th of the current revenue core we've had but a backlog of about seven times bigger so the backlog numbers aren't measured exactly the same way core weave is remaining performance obligation or rpo and nscale quotes total contract value which includes deals signed but not yet started.

29:42On the same basis as CoreWeave NScale's June 30th number was$56.4 billion. CoreWeave currently trades at just under 5x NTM revenue, Nebius at 9.3x per the refresh I did this week in my newsletter. So what does$35 billion buy? Today the business is running at about$400 million a year in revenue if you just took like the last quarter of around$100 million and multiplied by 4. Revenue over the next 12 months should be at least$1.2 billion because that much prepaid cash is already scheduled to turn into revenue. A year from now, if the contracts signed before December go live on schedule, the run rate could be somewhere around$3 billion to$4 billion.

30:21That estimate comes from the December backlog, which had about$5.5 billion set to be recognized across 26 and 27. Most of it in 27. It doesn't count a dollar from Anthropic yet because that hasn't even been built. They're gone live. So at$35 billion, NScale would be trading about 90x today's revenue. At$35 billion, N-Scale will be trading at about 90x today's run rate revenue, 30x its floor for next year's revenue, and 10x where the run rate could be a year from now. CoreWeave marketed its IPO at$35 billion, priced at about$23. That was about 12x its trailing revenue at the time. It then did$5.1 billion of revenue in 25.

30:57So IPO's buyers paid about 4.5 times what its first year as a public company actually delivered, which is pretty good. Miscellaneous stuff a note. Here's some funnies. There's a table comparing Wales and Delaware corporate law. So if you can't sleep tonight, they literally have a table comparing the difference between Wales and Delaware corporate law. It's an absolute banger. Among the highlights, English shareholders get preemptive rights on new stock. Amending the articles takes a 75 % vote. The takeover needs 90 % acceptance before the buyer can squeeze out the rest. I have no idea what I read because the table is super boring.

31:29SpaceX is listed as a competitor. N-Scale names new large-scale compute providers such as SpaceX alongside CoreWeave, Nebius, Crusoe, and Lambda. If you read our SpaceX S1 breakdown, that's the XAI side of their house, the Colossus supercomputer that they have in Memphis, and plan to put data centers in orbit. Number three, fish farms and gas turbines. So N-Scale's data center in Norway pipes its waste heat into the water supply of a nearby fish farm. I don't know why I included that, but they talk about a fish farm in Norway. So I have to tell you. Two banks share the top spot. Goldman and JP Morgan sit at the top of the cover with an asterisk noting they are listed in alphabetical order.

32:07So don't make any assumptions, which means they share lead left. Morgan Stanley is third, 23 banks total. Goldman ran the Series B placement and co-ran the Series C with JP Morgan. So they've worked together before. And the CFO spent more than two decades at JP Morgan before joining in just December. UK retailers, they're going to get a taste. The shares list only on the New York Stock Exchange, but part of the offering goes to UK retail investors through depository interests that settle in the UK system. Nscale also got the UK tax authority to confirm the setup won't trigger stamp duty. I hate stamp duty.

32:41I worked at a UK company and that's it. I hate paying stamp duty. It's filed as a prepackaged software, which is hilarious. The SIC code on the cover is 7372 prepackaged software for a company whose biggest assets are land, power, and generation of GPUs. Number seven, they hate pictures. This filing had very few images, no splash pages, nothing fancy. They said full send with text. Read it and weep. Number eight, it still counts as an emerging growth company and scales$103.4 billion of contracted value, but its annual revenue is under the$1.235 billion threshold, funny enough, so it qualifies for the lighter disclosure rules.

33:18One of the perks is an exemption from having the auditor attest to its internal controls, which is worth knowing given that they had two red flags. So what's the final take? Sometimes I just feel like I don't know anything anymore. I've spent the last few hours learning what a neocloud is instead of watching the end of Troy. I had it teed up on the TV until I saw this filing drop. It's too early in the day to be killing princes. Also, sometimes it's just better to be lucky than good. Stumbling from crypto mining into a generational supply and demand imbalance for AI is better than hitting the megabucks.

33:48My spidey senses do go up anytime I see references to low-cost provider and customer concentration. But hey, what do I know? As long as I don't build it in my backyard, I could use a cheaper LOM. None of this is investment advice. I wrote this instead of watching Troy, and neither I nor my dog Walter, my editor-in-chief, has ever been to a, quote, neocloud. Do your own homework for informational and entertainment purposes only.