By Hamza Faisal

Microsoft has scrapped its deal to anchor British AI cloud provider Nscale's first UK data center, Britain's Telegraph newspaper reported on Sunday, in a blow to the startup just as it moves toward a blockbuster US stock market listing.

The US tech giant, one of Nscale's two largest customers, recently terminated its agreement for the planned facility in Loughton, Essex, where it had been lined up as the core anchor tenant. The Telegraph gave no specific reason for the withdrawal, and neither Microsoft nor Nscale immediately responded to requests for comment, Reuters reported.

The grid, not the chips, killed the deal

The site had been contending with a series of delays, the paper reported. UK authorities have told Nscale they do not expect a power supply to reach the facility until the 2030s — a serious problem for a site designed to deliver around 90 megawatts and come online in 2027. Under the original plan, Microsoft would have leased 23,000 Nvidia AI chips at Loughton, making it the only announced customer for the building.

Nscale says it remains committed to the Loughton project and is exploring alternative sources of power, as well as other expansion sites in the UK. A company spokesman said its relationship with Microsoft "remains strong and long-term" and that the grid problem — described as a London-wide issue — would have no impact on its other contracts. Microsoft did not comment.

A delicate moment for the $35B IPO

The timing is awkward. Nscale filed for an initial public offering in the US last month, targeting a valuation of up to $35 billion and seeking to raise as much as $3 billion as soon as October. Its prospectus shows Microsoft and Anthropic account for roughly 85 percent of its contracts, underscoring how heavily the business depends on two customers. On paper the order book looks enormous: a contracted backlog of $103.4 billion, with Microsoft accounting for about $43.8 billion of that figure.

Loughton is not the only site running behind. At Nscale's flagship facility in Glomfjord, Norway, just 6.4 megawatts of a planned 30 megawatts is currently operational, roughly six months behind schedule — delays that have already triggered penalties, according to the reports.

The AI infrastructure wobble

The exit lands amid growing investor jitters about the debt-fueled AI data center build-out. Shares of AI infrastructure plays have sold off in recent weeks as borrowing costs rise, and the Nvidia-backed neocloud — which competes with CoreWeave, Nebius, Crusoe and Lambda — has scaled from $100 million to more than $103 billion in contracted value in just two and a half years. But Nscale currently operates only about 55 megawatts of capacity in Europe against a far larger project pipeline, meaning most of that headline backlog is not yet live.

For Microsoft, the withdrawal is small change: one tenancy in a global cloud empire. For Nscale, losing the anchor tenant at its first British site is a stress test of the IPO story — that a young neocloud can convert $103 billion of paper contracts into live, powered, revenue-generating data centers. With the grid connection a decade away, Loughton will be the first place investors look.