Microsoft Axes AI Data Centre Deal in Blow to UK Firm Nscale

Microsoft has terminated its agreement to become the anchor tenant at British AI infrastructure company Nscale's first UK data centre in Loughton, Essex, dealing a significant blow to the firm's multibillion-dollar Wall Street listing ambitions.

Microsoft, one of Nscale's two largest customers, recently informed the company that it was pulling the plug on the agreement announced last year. The tech giant had agreed to rent 23,000 Nvidia AI chips at the facility, which contains thousands of the high-end processors.

Microsoft Cancels Essex Agreement

Nscale, founded just two years ago by Australian entrepreneur Josh Payne, a former coal miner, has positioned itself as Britain's "sovereign" data centre provider. The company, backed by tech giants including Nvidia, is privately valued at $15bn and is seeking to raise billions in a float that could value it at up to $35bn (£26bn), making it one of Britain's most valuable AI companies.

Microsoft's backing had formed part of £22bn in UK investments promised by the company last year during Donald Trump's state visit. Sir Keir Starmer said the project was a step towards Britain "becoming a world leader in AI". Ministers have lobbied local councillors to push the scheme through.

Listing Plans Under Pressure

The cancellation leaves the Loughton site in apparent limbo, with Microsoft its only announced customer. The facility was originally intended to come online next year, but grid bosses have told Nscale they do not expect a power supply until the 2030s.

More than 40% of Nscale's $103bn in contracted revenue comes from Microsoft, although the UK deal is believed to be a small part of that total. Anthropic is another major customer.

Nscale's attempted flotation is viewed as a crucial litmus test of investor appetite for debt-heavy AI businesses. The sector has been hit by a brutal sell-off, with rival neocloud companies CoreWeave and Nebius seeing their shares and bonds slump, and Australian rival Firmus cancelling plans for a $20bn IPO earlier this month.

Grid Delays and Industry Jitters

Tech analyst Gartner said last week that $3.5tn could be written off by 2030 if the AI boom fails to deliver on its promises. Soaring interest rates and inflation have raised concerns about the sustainability of business models reliant on raising new investment and debt.

Separately, Nscale has faced delays at a flagship data centre in Norway, reportedly leading to heavy penalties. In April, ChatGPT-maker OpenAI suspended plans for a "Stargate" AI facility with Nscale on Tyneside, citing Britain's high electricity prices.

An Nscale spokesman said the company remains committed to the Loughton project and the UK and is exploring alternative power sources, in addition to other expansion sites. "Our relationship with Microsoft remains strong and long-term, and this unfortunate London-wide grid issue has no impact on our other contracts." Microsoft did not comment.

Nvidia chief executive Jensen Huang praised Nscale at a London event this week, saying it "could be the most valuable UK startup they have created in the last 10 years". Nscale counts former Facebook executives Sheryl Sandberg and Sir Nick Clegg on its board.

Sources: Yahoo Finance · The Telegraph · Techmeme