Microsoft Pulls out of Nscale U.K. Data-Center Deal Over Power-Supply Issues

Microsoft MSFT -1.93%decrease; down pointing triangle pulled out of a deal to lease capacity from an Nscale Global Holdings data center in the U.K. because of power-supply issues, a setback for the AI infrastructure company as it prepares to go public.

Nscale said last year that it had purchased a site in Loughton on the outskirts of London for its first U.K. data center, and that Microsoft would lease the 50-megawatt facility with about 23,000 Nvidia GB300 chips to power Microsoft Azure services.

A Microsoft spokesperson said the company remained committed to its partnership with Nscale and that its decision to pull out related to a single site. The Loughton facility was expected to go live by the end of this year, but Nscale said that would no longer be the case due to challenges with the U.K power grid.

“We remain committed to both the Loughton project and the U.K. and we are exploring alternative power sources for the site, in addition to other expansion sites in the U.K. Our relationship with Microsoft remains strong and long-term, and this unfortunate London-wide grid issue has no impact on our other contracts,” an Nscale spokesperson said.

Microsoft’s decision is a setback for U.K.-based Nscale because it shows that clients can pull the plug on deals when projects suffer delays due to unforeseen circumstances, threatening revenue streams.

The company relies on a network of data centers in Europe and the U.S. that it operates on its own or through partners, according to its website, but is seeking to expand AI infrastructure in Asia as well. Companies can tap its data centers by reserving graphics processing units, or GPUs—chips that accelerate the millions of computations required in AI training.

Investors recently punished AI stocks, particularly indebted neocloud companies like CoreWeave, following strong inflation data in the U.S. that raised fears the Fed could hike interest rates and bump up the cost of debt many companies are taking on to finance AI.

Nscale, which counts former Meta Platforms executives Nick Clegg, Sheryl Sandberg and Fidji Simo among its board members, isn’t listed yet, but the company last month filed a registration statement with the U.S. Securities and Exchange Commission for a planned initial public offering.

Last month, it raised $3.36 billion through convertible loan notes in a pre-IPO financing round led by hedge fund Third Point and supported by new and existing investors.

Backed by Nvidia, Dell Technologies and Nokia, Nscale raised $2 billion earlier this year at a $14.6 billion valuation as investors saw promise in AI infrastructure.