Microsoft pulls out of Nscale deal, putting $35bn IPO at risk

Loughton site may not receive power until the 2030s

Microsoft’s withdrawal from Nscale’s delayed Essex datacentre project threatens the AI infrastructure company’s planned $35 billion IPO and highlights the UK’s power-grid constraints.

Microsoft has withdrawn from a deal to use a datacentre in Essex being developed by British AI infrastructure company Nscale.

The US technology giant had been due to become the anchor tenant at Nscale's first UK datacentre in Loughton, Essex, where it had agreed to rent 23,000 Nvidia Vera Rubin chips. Microsoft recently notified the company that it was terminating the agreement. The withdrawal threatens to complicate Nscale's proposed New York Stock Exchange (NYSE) flotation.

Last month, the London-headquartered company filed to list on NYSE, seeking to raise billions of dollars despite growing concerns among investors about the cost and profitability of the AI infrastructure boom.

Nscale has been privately valued at $15 billion and hopes to achieve a stock market valuation of more than twice that amount. But whilst the company recorded a substantial increase in revenue during the first half of 2026, it posted a net loss of £755 million ($1.2 billion) according to its IPO filing.

Microsoft withdrawal challenges UK AI ambitions

The UK government has championed the Essex development as key to Britain's AI ambitions, but repeated delays and difficulties securing a power supply have hampered progress. Grid officials have reportedly informed Nscale that the site may not receive power until the 2030s, delaying its ability to operate commercially.

An Nscale spokesman said the company remained committed to the Essex development and was investigating alternative power supplies, as well as other opportunities to expand its UK operations.

"Our relationship with Microsoft remains strong and long-term, and this unfortunate London-wide grid issue has no impact on our other contracts," the spokesman said.

Britain's high electricity costs and lengthy waits for grid connections have raised concerns about the country's ability to attract large-scale AI infrastructure investment. In April, OpenAI, the developer of ChatGPT, suspended plans for a proposed AI facility with Nscale on Tyneside, citing the UK's high electricity prices.

Nvidia support offers a boost to Nscale

Nscale was established in 2024 after being spun out of Australian bitcoin mining infrastructure company Arkon Energy. Since then, it has grown rapidly into one of Europe's most heavily funded datacentre businesses.

The company provides computing capacity, electricity infrastructure, datacentres and software for developing and operating AI models.

It operates across 14 regions and has a pipeline of power capacity exceeding 10 gigawatts. At the end of August, Nscale reported 7 megawatts (MW) of active computing capacity in its own datacentres, alongside a further 48MW operating in rented facilities.

Nvidia has become a major source of financial and commercial support for Nscale. The chipmaker supplies Nscale with AI processors, purchases computing capacity from the company and has invested more than $2 billion in the business.

Microsoft represents more than 40% of Nscale's $103 billion in contracted revenue, although the Essex project is understood to account for only a small share of that figure. Anthropic is another significant customer.

Nscale is also facing delays at a major datacentre project in Glomfjord, Norway, with only a fraction of the planned 30MW of capacity operational, reportedly exposing the company to substantial financial penalties.

Computing says:

As part of our annual cloud/AI sustainability research Penny Horwood examined AI-native clouds in June and wrote this article warning that Nscale (among other neoclouds like CoreWeave) were building too slowly and on borrowed money and highly concentrated customer demand.

Microsoft’s withdrawal from Loughton is yet another warning about the growing gap between operational, billable capacity now and revenue backlogs of the future. It also highlights just how jittery hyperscalers are getting about lengthening delays they are experiencing in receiving some return on their vast capital outlays on AI infrastructure.

The wider market showed signs reaching the same conclusion last week. CoreWeave’s rising borrowing costs, the collapse of Firmus’s flotation plans in Australia and the re-emergence of the words "credit default swaps" on various news sites show that investors might finally be starting to reappraise the risks that they have exposed themselves (and all of us) to by financing the buildout of AI infrastructure on such a vast scale.

The collapse of the Nscale and Microsoft deal also presents ministers who presented it a year ago as evidence of the UK being a player on the global AI stage with yet another headache. It highlights the extent to which grid capacity is throttling the infrastructure building this country desperately needs.

It also cuts through all the rhetoric to show that until the business fundamentals of this sector catch up with reality, it is not fit to play the role it's been allocated in Britain's national economic story.