Microsoft has pulled out of a deal to lease computing capacity from UK start-up Nscale after the Essex data centre emerged as unlikely to have power until after 2030. A person familiar with the matter said Microsoft cancelled the agreement for the Loughton site, which is no longer expected to connect to the grid this year as planned. The person said Microsoft would have leased the entire 50MW capacity at the site. Microsoft's withdrawal leaves Nscale searching for another tenant. The Telegraph first reported Microsoft's exit from the deal.
The Loughton deal, announced last year, was part of Microsoft's £22 billion investment in the UK. Then-prime minister Sir Keir Starmer hailed the investment as helping the country become a world leader in AI. The companies said at the time that the Loughton campus would house the UK's largest AI supercomputer, deploying some 23,000 Nvidia GB300 chips. The cancellation is a setback for Nvidia-backed Nscale as Nscale targets a New York initial public offering at a $35 billion valuation this year. Former Meta executives Sir Nick Clegg and Sheryl Sandberg sit on Nscale's board.
An Nscale spokesperson said Nscale remained committed to the Loughton project and the UK. The spokesperson said Nscale was exploring alternative power sources for Loughton, alongside other expansion sites in the UK. The spokesperson said Nscale's relationship with Microsoft remained strong and long-term. The spokesperson said the London-wide grid issue had no impact on Nscale's other contracts with Microsoft. Microsoft did not immediately respond to a request for comment.
Microsoft and Anthropic are Nscale's two biggest customers, and Nscale relies heavily on both companies. Nscale leases capacity to Microsoft at sites including Texas and Norway. A person familiar with the matter said the Loughton deal accounted for a small proportion of Microsoft's total contracts with Nscale.
Nscale, CoreWeave and Nebius are among the companies seeking to capitalize on demand for computing capacity fueled by the AI boom. However, investors have grown increasingly concerned about heavy debt burdens in the sector. CoreWeave and Nebius shares have each fallen 24% in the past five days. Nscale raised $2 billion in March this year in the largest deal of that kind for a European technology start-up. Nscale is racing to deliver planned data centres or risk industry-standard penalties for late delivery.
Anthropic could walk away from a $45 billion deal with Nscale if Nscale misses financing or delivery timelines for a major project in West Virginia. Nscale had just 25,000 advanced AI chips online in total as of August, compared with nearly 500,000 chips Nscale plans to operate.
Energy regulator Ofgem has warned of a backlog of applications for electricity connections in the UK. Ofgem proposed in July to start charging data centres hundreds of millions of pounds to connect to power networks. Ofgem said at the time that some 315 data centres were waiting to connect to the National Grid, demanding about 73GW of power. Ofgem compared that demand with peak energy demand of 45GW for the entire country.
Microsoft Cancels Nscale Data Centre Deal Over Power Delays
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Summary
Microsoft has canceled its 50MW data center lease deal with UK startup Nscale due to grid connection delays at the Loughton site. The project, part of Microsoft’s £22 billion UK investment, was set to host the UK’s largest AI supercomputer. Nscale, backed by Nvidia and former Meta executives, is now seeking new tenants and alternative power sources. Recent inflation data has added pressure to infrastructure costs, while AI + crypto news highlights ongoing sector-wide delivery and debt concerns.
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