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Microsoft has pulled out of a deal to lease IT capacity from UK start-up Nscale after it emerged the neocloud’s Essex data center is unlikely to have power until 2030.
The American technology giant has canceled its agreement on the Loughton site, which is no longer expected to be connected to the network this year as planned, according to a source close to the matter.
The move is a blow for Nvidia-backed Nscale – which counts former Meta executives Sir Nick Clegg and Sheryl Sandberg on its board – as it targets an IPO in New York at a valuation of $35 billion this year.
The Loughton deal announced last year was part of a £22 billion investment by Microsoft in the UK, hailed by then-Prime Minister Sir Keir Starmer as helping the country become a “world leader” in AI. The companies announced at the time that 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 site’s entire 50 MW capacity, the person familiar with the matter said, leaving Nscale to look for another tenant. Microsoft’s exit from the deal was first reported by The Telegraph.
An Nscale spokesperson said the company remained “committed to the Loughton project and the UK” and was “exploring alternative energy 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 network 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 largest clients and rents capacity to the American technology group on sites notably in Texas and Norway. A person familiar with the matter said Loughton’s deal represented only a small proportion of Microsoft’s total contracts with Nscale.
The British startup is one of several companies, including CoreWeave and Nebius, seeking to capitalize on demand for computing capacity fueled by the AI boom.
However, investors are increasingly concerned about the sector’s heavy debt burden, with the share prices of CoreWeave and Nebius both falling 24 percent over the past five days.
Nscale, which raised $2 billion in the largest such deal for a European tech startup in March this year, is rushing to deploy its planned data centers or face industry-standard penalties for late deliveries.
Anthropic could also walk away from its $45 billion deal with Nscale if the group fails to meet deadlines to finance or deliver a major project in West Virginia. Nscale had only 25,000 advanced AI chips online in total as of August, compared to the nearly 500,000 it plans to operate.
The UK has been grappling with network connection issues for several years, with huge queues forming as the network manager sought to expand and strengthen the network.
Over the past year, operator and regulator Ofgem have implemented a series of reforms which have resulted in the postponement of connection dates for energy suppliers and electricity users, such as data centres.
In July, Ofgem proposed starting to charge data centers hundreds of millions of pounds to connect to electricity grids. Some 315 data centers were lining up to connect to the national grid, requiring about 73 GW of power, it said at the time, compared to the peak energy demand for the entire country of 45 GW.
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