The current limit for external hard drive size on Xbox is already pretty big, but the team is expanding that capability, starting out with Xbox Insiders this month. Microsoft's current limit of 16TB will soon be removed - allowing players to utilise even more storage space on Xbox in 2025.
Going off the team's wording on this, it sounds like there'll be no hard limit on storage size once this restriction has been removed. Xbox drives will simply create more partitions for storage - with each partition showing up as a separate device on your console even if you're just using one massive drive.
"We are enabling support for external USB drives larger than 16TB, so you can be sure your favorite games are always ready to play! Newly formatted drives that are larger than 16TB will be formatted with multiple partitions to utilize all available space for games and apps. These will appear as multiple devices in the storage devices list."
Microsoft also notes that if you've already been using a bigger drive that your Xbox console has capped to 16TB, you'll have re-format it to take advantage of storage capacity beyond that number. This new feature is rolling out today for the Alpha Skip-Ahead ring of Xbox Insiders, before eventually being available to all users in the coming weeks.
If you happen to still store loads of games on a big external hard drive, this feature could come in handy, even if that level of storage size seems a bit mental to us! We're mostly using SSD space on Xbox Series X|S these days, which is of course nowhere near the previous 16TB cap anyway.