Microsoft exits data center deal in blow to UK AI ambitions

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Add to Preferred Sources Microsoft said it was still committed to its partnership with Nscale despite pulling out of one project. Microsoft confirmed Monday that it has pulled out of a U.K. AI data center deal with British startup Nscale, in a blow to the country's artificial intelligence ambitions.

The U.S. technology giant agreed last year to lease computing capacity from AI infrastructure provider Nscale, which is backed by chip titan Nvidia, at a planned data center in Loughton, northeast of London.

A Microsoft spokesperson said "this decision relates to a single site," adding the company remains "committed to our partnership with Nscale."

The deal was announced alongside a flurry of multibillion-dollar investments from U.S. tech giants during President Donald Trump's state visit to the U.K. last year, which were touted as helping turn Britain into an AI superpower.

Former Prime Minister Keir Starmer cited the Loughton site as the "largest U.K. sovereign AI data center."

But some data center projects have struggled to get off the ground due to concerns over high electricity prices and lengthy waiting times to connect to Britain's power grid.

"We remain committed to both the Loughton project and the U.K. and we are exploring alternative power sources for the site, in addition to other expansion sites in the U.K.," an Nscale spokesperson said Monday.

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

U.K. media reported that power grid officials had told Nscale that the site would not have access to power until the 2030s.

It comes as Nscale gears up for an initial public offering on the New York Stock Exchange, reportedly targeting a valuation of up to $35 billion.

In its IPO filing, Nscale noted that "a substantial portion of our committed revenue is driven by a limited number of customers with large contracts," namely Microsoft and U.S. AI giant Anthropic.

The Loughton deal accounted for only a small portion of Microsoft's agreements with Nscale, according to a person familiar with the matter.

Earlier this year, ChatGPT maker OpenAI withdrew from a partnership with Nscale and Nvidia to establish a U.K. version of Stargate—a large-scale AI infrastructure initiative.

OpenAI blamed high energy costs and regulatory uncertainty for shelving the project, according to British media.

Meeting the electricity demands of large new data centers often requires major infrastructure upgrades, adding to connection delays.

U.K. Power Networks, which does not disclose information about individual connections, told AFP on Monday that "many data centers, while they can connect to our distribution network, are awaiting works on the national transmission network, which we do not own."

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