Microsoft pulls out of UK AI data centre deal with Nscale

Microsoft has announced it is withdrawing from a UK AI data centre deal with start-up Nscale, marking a setback for the nation's artificial intelligence ambitions. The US tech giant agreed last year to lease computing capacity from Nscale, an Nvidia-backed AI infrastructure provider, at a planned data centre in Loughton, northeast of London.

A Microsoft spokesperson clarified that the decision pertains to a single site, yet reiterated the company's commitment to its partnership with Nscale. The deal was announced alongside a series of multi-billion-dollar investments from US tech firms during President Donald Trump's state visit to the UK last year, which were marketed as a means to position Britain as an AI superpower.

Former Prime Minister Keir Starmer had highlighted the Loughton site as the "largest UK sovereign AI data centre". However, several data centre projects have faced obstacles due to high electricity costs and lengthy waits for connection to Britain's power grid. Nscale confirmed on Monday that they remain committed to the Loughton project and the UK, but are investigating alternative power sources for the site and other expansion sites across the country.

According to data centre officials, the site would not have access to power until the 2030s. This development occurs as Nscale prepares for an initial public offering on the New York Stock Exchange, with an estimated valuation of up to $35 billion. Nscale's IPO filing revealed that a significant portion of their committed revenue comes from a limited number of customers, primarily Microsoft and AI giant Anthropic.

The Loughton deal constituted only a minor share of Microsoft's agreements with Nscale, as confirmed by an individual familiar with the matter. Earlier this year, ChatGPT developer OpenAI also abandoned a partnership with Nscale and Nvidia to build a UK version of Stargate, an extensive AI infrastructure project, citing high energy costs and regulatory uncertainty as the reasons for halting the initiative.