The NScale IPO | A Neocloud S1 Breakdown

CJ Gustafson (0:00)

I was today years old when I found out what a Neocloud is. Just kidding, kind of. NScale, 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, 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 Well, we're on a ride here. This is the NScale IPO S1 breakdown.

Is this thing on?

Yesterday's price is not today's price.

I'm going to be honest with you. The dusty ass Lenovo ThinkPad I wrote this on, it's an S1 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're also gross margin negative, a recovering crypto miner, and participate in a $100 billion in take or pay contracts with the likes of Anthropic and Microsoft. NScale followed to list in a New York Stock Exchange under the ticker NSCL, which I can't help reading as N-Popsicle. The price range is still blank, but the Financial Times reports the company is targeting a valuation of about $35 billion. In March, its last private round valued at around $14.6 billion, according to the information.

From their S1, NScale is a full stack AI hyperscaler building the engine of superintelligence. 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, and 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 in three, what's a commitment worth? But first, WTF is Aneocloud. So Aneocloud 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. NScale 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 hyperscalers.

So 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. A quick refresher on the five layers of AI and which one NScale actually touches. It helps to think of the AI stack in these layers. First, you have power, the electricity itself, and the grid or generated somewhere on-site. Maybe you're near like a river.

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 outbroken nodes so customers never see them. And then the model and the app. So that's the Anthropic Open AI 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 any scale 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. So the chips come from Nvidia, the generators from Caterpillar, and a lot of the buildings come from somewhere else. Of NScale's 17 data center sites, seven are wholly owned, nine are co-loaded, co-location. I like to say co-load, so I sound like an insider, which means renting space inside someone else's facility, and one is leased.