Microsoft has canceled its contract to lease 23,000 Nvidia AI chips at Nscale's planned data center facility in Loughton, Essex, following mounting delays in securing local electrical grid power.
The decision removes the sole anchor tenant from Nscale's flagship British campus just weeks before the infrastructure provider's planned initial public offering in New York.
Grid Connection Bottlenecks
The Loughton facility was announced as the site of the UK's largest AI supercomputer, intended to support Microsoft's Azure cloud operations in Britain. Under the initial agreement, Nscale planned to deploy 23,040 Nvidia GB300 GPUs across an initial 50-megawatt IT capacity footprint, scalable up to 90 megawatts, with hardware delivery scheduled for early 2027.
However, grid connection timelines in the region slipped repeatedly. Utility interconnection estimates pushed full power delivery toward the 2030s, creating an untenable multi-year delay for near-term AI cluster capacity.
Backlog Impact and IPO Implications
Nscale has positioned itself as an AI-native neocloud and sovereign compute provider, backed by Nvidia and institutional investors. The company has assembled an estimated $103 billion contracted revenue backlog across its global portfolio.
Microsoft and Anthropic together account for roughly 85% of that backlog, with Microsoft representing more than 40%. While the Essex lease represents only a fraction of Microsoft's broader commitments with Nscale, the loss of an anchor customer leaves the Loughton development without a committed buyer ahead of Nscale's anticipated $3 billion listing on the New York Stock Exchange.
Hyperscaler Capital Discipline
The contract termination highlights a broader shift among major AI hyperscalers. While overall demand for AI accelerator capacity remains high, operators are increasingly unwilling to lock capital into delayed civil and electrical infrastructure projects. As lead times for high-voltage transformers and grid interconnections extend across Europe and North America, power delivery schedules have become the primary determinant of data center site viability.
Update, October 19, 2026
Microsoft was the only publicly announced customer for the Loughton site, The Guardian reports, and it remains on board for another Nscale project in Norway. UK Power Networks, which runs the grid across London and the south east of England, told Nscale it could not supply enough power to Loughton until the early to mid 2030s. The UK government had described the project as the "largest UK sovereign AI datacentre" when it announced its AI strategy in 2025.
Nscale says the rest of the relationship is intact. "Our relationship with Microsoft remains strong and long-term, and this unfortunate London-wide grid issue has no impact on our other contracts," a spokesperson said, adding that the company remains committed to Loughton and is exploring alternative power sources and other UK sites.
Loughton was one of four projects Nscale announced in September 2025 as part of a reported $24 billion Microsoft contract, alongside sites in Texas, Portugal and Norway, according to SiliconANGLE. Nscale confidentially filed for its US listing last month and has applied to trade on the NYSE under the ticker NSCL. SiliconANGLE puts its most recent private valuation at $15 billion, and the Observer reports a target valuation of $35 billion for the roughly $3 billion raise.
Investors are pushing back on the price. Bloomberg reported that Nscale faces opposition to a valuation target of roughly $30 billion, with some prospective investors urging a range of $16 billion to $19 billion, according to people familiar with the matter.
The operating footprint behind the backlog is small. The prospectus lists five active data centers totaling 55 megawatts, with 12 more in development, per the Observer. AI Affairs, citing Bloomberg, reports that Nscale's Norway site is six months behind schedule with 6.4 megawatts of an intended 30 megawatts running. SiliconANGLE adds that the Norway facility has dealt with cooling system leaks, regulatory hurdles and a fire.
The listing market for neoclouds has also cooled. The Observer reports that Firmus, an Australian neocloud backed by Nvidia and Blackstone, pulled a $30.5 billion IPO, that AirTrunk shelved a Singapore listing days later, and that CoreWeave shares fell 15% in a single session. "I don't think that the valuation itself is ambitious in the context of the other neoclouds," DA Davison analyst Gil Luria told the Observer. "But having said all that, I'm not sure neoclouds are a good business to begin with." The Information reported that industry executives expect only 7 to 10 of the hundreds of neoclouds to survive.
Sources
- The Daily Telegraph: Microsoft axes AI deal in setback for UK data centre pioneer
- Data Center Dynamics: Microsoft to build UK's largest supercomputer as part of $15bn AI infrastructure push
- Nscale Infrastructure Announcement
- The Guardian: Microsoft pulls out of AI datacentre project in Essex over power supply concerns
- SiliconANGLE: Nscale's IPO plans could be at risk after Microsoft cancels UK data center project
- The Observer: Nscale's IPO caught in the AI data centre wobble
- AI Affairs: Microsoft exits Nscale's Essex data centre deal ahead of planned IPO
- Techmeme summary of Bloomberg and The Information reporting
