Microsoft exits data center deal with Nscale: report

Microsoft has reportedly pulled out of a UK data centre deal with AI infrastructure provider Nscale, potentially impacting the British company's plans for an initial public offering, according to the Telegraph. The agreement centered around a proposed data centre in Loughton, Essex, where Microsoft would have been the anchor tenant.

The reason for Microsoft's withdrawal remains unclear, though the project has encountered delays and challenges securing electricity supplies. Authorities have informed Nscale that the facility may not receive a grid connection until the 2030s, raising concerns about the site's development timeline. Nscale's main data center in Norway is also behind schedule, with only 6.4 megawatts of its 30-megawatt capacity currently operational.

The news comes as Nscale prepares for a potential IPO that could raise up to $3 billion as early as October. Microsoft and Anthropic are responsible for about 85% of Nscale's contracts, indicating Nscale's heavy reliance on major technology clients. Losing Microsoft as the anchor tenant could complicate Nscale's expansion strategies and raise investor concerns ahead of the listing.

Despite the setback, Nscale claims it remains committed to the Loughton site and is exploring alternative power sources and additional UK expansion opportunities. The company insists that its relationship with Microsoft remains strong and that electricity supply issues will not affect other contracts. Microsoft has not publicly commented on the reported withdrawal.

The situation reflects growing investor apprehensions about financing requirements and execution risks associated with AI infrastructure projects. Shares of CoreWeave, a rival AI infrastructure provider, dropped around 25% last week due to concerns over borrowing plans and data center financing. Additionally, Australian data center developer Firmus recently canceled its IPO after struggling to attract sufficient investor demand at its proposed valuation.

These setbacks underscore the increasing pressure on AI infrastructure companies to demonstrate that ambitious expansion plans are financially viable.