Microsoft pulls out of landmark AI project in blow to British data centre firm

The decision is a blow to British company Nscale, which is behind the planned £2billion facility in Loughton, Essex.

Nscale is currently pursuing a Wall Street flotation that could value the business at up to $35billion (£26billion).

Microsoft, one of Nscale’s two largest customers, had agreed to rent 23,000 high-end Nvidia AI chips at the site. It was the only customer publicly announced for the facility.

The project has faced problems securing enough power. Grid operators have told Nscale that a connection initially expected by the end of last year will not be available until the 2030s, The Telegraph reported.

Microsoft declined to comment on its withdrawal.

Despite the setback, Nscale said it remained committed to developing the Essex site.

A spokesman said: “We remain committed to both the Loughton project and the UK and we are exploring alternative power sources for the site, in addition to other expansion sites in the UK.”

The company described the power supply problem as a “London-wide grid issue” and said it had no effect on its other contracts.

Nscale also insisted that its wider relationship with Microsoft remained intact.

“Our relationship with Microsoft remains strong and long-term,” the spokesman added.

The two companies continue to work together on data centre projects in Norway, Portugal and the United States.

The Loughton facility is still expected to create 250 permanent jobs once it eventually opens.

The withdrawal comes amid a brutal period for AI infrastructure companies. Rival data centre developers have watched their share prices tumble over the past week, driven by fears over rising interest rates and mounting debt burdens.

Australian competitor Firmus scrapped plans for a $20billion initial public offering earlier this month, blaming market conditions. Other so-called neocloud firms, including CoreWeave and Nebius, have also seen their shares and bonds fall sharply.

Technology analyst Gartner warned last week that $3.5trillion could be wiped from the sector’s value by 2030 if artificial intelligence fails to live up to expectations.

Britain’s energy costs have posed a separate obstacle. In April, OpenAI shelved plans for a “Stargate” AI facility with Nscale on Tyneside, citing the country’s high electricity prices.

Nscale was established just two years ago by Josh Payne, an Australian former coal miner. The company has faced questions over its ability to deliver on major contracts given its limited track record in constructing data centres.

Its board includes prominent figures such as Sheryl Sandberg and Sir Nick Clegg, both former Facebook executives. The company is backed by chip giant Nvidia and has been privately valued at $15billion.

Nvidia’s chief executive Jensen Huang offered public support for the company at a London event last week, saying: “You could be the most valuable UK startup they have created in the last 10 years.”More than 40 per cent of Nscale’s $103billion in contracted revenue comes from Microsoft, though the UK deal is thought to represent only a small portion. Anthropic is another significant customer.

Ministers have championed the Loughton project as a symbol of Britain’s AI ambitions. Microsoft’s backing had formed part of £22billion in UK investment pledges made during Donald Trump’s state visit last year, when Sir Keir Starmer said it represented a step towards Britain “becoming a world leader in AI”.