Microsoft pulls plug on Nscale data centre deal

Microsoft has pulled out of a deal to lease computing capacity from UK start-up Nscale after it emerged that the neocloud’s Essex data centre would be unlikely to have a power supply until after 2030.

The US technology giant has cancelled its agreement over the Loughton site, which is no longer expected to be connected to the grid this year as planned, according to a person familiar with the matter.

The move is a blow to Nvidia-backed Nscale — which has former Meta executives Sir Nick Clegg and Sheryl Sandberg on its board — as it targets a New York IPO at a $35bn valuation this year.

The Loughton deal announced last year was part of a £22bn investment from Microsoft into the UK hailed by then prime minister Sir Keir Starmer as helping the country become a “world leader” in AI. The companies said at the time they would build the “UK’s largest AI supercomputer” at the Loughton campus, deploying some 23,000 Nvidia GB300 chips.

Microsoft would have leased the entire 50MW capacity at the site, the person familiar with the matter said, leaving Nscale searching for another tenant. Microsoft’s exit from the deal was first reported by The Telegraph.

A spokesperson for Nscale said it remained “committed to both the Loughton project and the UK” and was “exploring alternative power sources for the site, in addition to other expansion sites in the UK.”

“Our relationship with Microsoft remains strong and long-term, and this unfortunate London-wide grid issue has no impact on our other contracts,” they added. Microsoft did not immediately respond to a request for comment.

Nscale relies heavily on Microsoft alongside Anthropic as its two biggest customers and leases capacity to the US tech group 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.

Microsoft had also originally planned to lease capacity at Nscale’s Monarch centre in West Virginia. Nscale’s draft listing documents show that when the company agreed in March to buy the 2,250-acre site, it had also signed a letter of intent to provide Microsoft up to 1.35GW of capacity.

However, by late June, references to the Microsoft agreement had been removed from the draft documents. In late August, Anthropic signed a deal for a portion of the site, though Nscale as of mid-September had yet to lock in financing to build it.

Nscale is one of several companies including CoreWeave and Nebius seeking to capitalise on demand for computing capacity fuelled by the AI boom.

However, investors have grown increasingly concerned about the heavy debt burdens in the sector, with CoreWeave and Nebius’s share prices both falling 24 per cent in the past five days.

Nscale, which raised $2bn in the largest deal of its kind for a European tech start-up in March this year, is racing to roll out its planned data centres or risk facing industry standard penalties for late delivery.

Anthropic could also walk away from its $45bn deal with Nscale if the group does not hit financing or delivery timelines for its major project in West Virginia. Nscale had just 25,000 advanced AI chips online in total as of August, compared with the nearly 500,000 it plans to operate.

The UK has been grappling with grid connection problems for several years, with huge queues forming as the grid operator has looked to build out and reinforce the network.

Over the past year, the operator and the regulator Ofgem have rolled out a series of reforms that have meant that both energy providers and power users, such as data centres, have had their connection dates pushed back.

In July, Ofgem proposed starting to charge data centres hundreds of millions of pounds to plug into power networks. Some 315 data centres were queueing to connect to the national grid, demanding about 73GW in power, it said at the time, compared with the peak energy demand for the entire country of 45GW.