Microsoft has withdrawn from a major UK data centre deal. The decision is a setback for British AI infrastructure developer Nscale, which had planned to make its Loughton, Essex, facility operational next year. The project has faced repeated delays, with electricity grid operators reportedly saying power won't be available until the 2030s. Microsoft had agreed to lease 23,000 Nvidia AI chips at the site and was expected to become its anchor tenant.
According to a report by The Telegraph, the withdrawal also comes as Nscale prepares for a potential US stock market listing that could value the company at up to $35 billion (£26 billion), raising questions about its expansion plans and investor confidence in AI infrastructure businesses.
Microsoft withdraws from Nscale's Essex data centre project
Microsoft recently informed Nscale that it was pulling out of the agreement announced last year. The deal was part of Microsoft's broader UK investment commitments worth £22 billion, announced during US President Donald Trump's visit to the country.
The proposed facility would have housed thousands of high-performance Nvidia AI chips. However, difficulties securing electricity connections have delayed the project, forcing Nscale to look for alternative energy sources and new expansion locations.
An Nscale spokesman said:
“We remain committed to both the Loughton project and the UK, and we are 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.”
Microsoft did not comment on the decision.
Nscale's planned IPO faces fresh challenges
The setback comes as Nscale considers raising billions of dollars through a potential Wall Street listing. Backed by Nvidia and other investors, the company has been privately valued at $15 billion and reportedly targets a valuation of up to $35 billion through the proposed flotation.
Microsoft accounts for more than 40% of Nscale's $103 billion in contracted revenue, although the Essex project is believed to represent only a small portion of that amount. Anthropic is another major customer.
Long-term commitments from major technology companies matter for data centre developers, which need substantial financing to build facilities and buy computing hardware. Losing Microsoft's commitment to the Essex site could complicate Nscale's efforts to show it can deliver planned infrastructure projects.
Electricity shortages delay Britain's AI infrastructure plans
The Loughton case study highlights challenges in developing the country's AI infrastructure, including the high cost of electricity and long delays in grid connections.
Nscale has also encountered delays at a data centre project in Norway, reportedly resulting in significant penalties. Separately, OpenAI suspended plans in April for a Stargate AI facility with Nscale on Tyneside, citing Britain's high electricity prices.
The wider AI infrastructure sector has faced investor concerns over rising borrowing costs and whether demand will justify the substantial spending required to build data centres. Australian rival Firmus cancelled plans for a $20 billion IPO earlier this month, citing market conditions, while other infrastructure providers have also experienced pressure on their shares and bonds.
Nscale, founded by Australian entrepreneur Josh Payne two years ago, continues to pursue its UK expansion plans despite the Essex setback. The project's future will depend partly on whether the company can secure an alternative power supply and find another customer for the facility.