Microsoft drops Nscale's UK data center deal weeks before its $3 billion IPO

Microsoft has pulled out as the anchor customer for Nscale's flagship UK data center in Loughton, Essex, according to a report in The Telegraph that Bloomberg confirmed on Sunday, October 18. The exit comes just weeks before Nscale is expected to launch a US initial public offering that could raise up to $3 billion.

Neither company has given an official reason, and Microsoft declined to comment to Reuters. But the timing points to a specific culprit: the UK's power grid. Local grid operators reportedly told Nscale they could not guarantee an electricity connection for the Loughton site until sometime in the 2030s, according to the Telegraph's reporting.

The Loughton campus was meant to be a showcase project. Announced in 2025, the 50MW facility — expandable to 90MW — was slated to house roughly 23,000 Nvidia GB300 GPUs starting in the first quarter of 2027, and was pitched as what would become the UK's largest AI supercomputer. It was part of a much larger agreement in which Nscale contracted to supply Microsoft with around 200,000 Nvidia GB300 GPUs across sites in the US, Norway, Portugal, and the UK.

Nscale says the relationship with Microsoft "remains strong and long-term," and that the Essex grid problem won't touch its other contracts. The company says it is now exploring alternative power sources and other UK locations for the stalled site. Microsoft has separately signed a letter of intent for a campus in West Virginia, suggesting the two companies' broader partnership is intact even as this specific project falls apart.

The stakes go well beyond one data center. Nscale's IPO filing shows that Microsoft and Anthropic together account for about 85% of its contracted revenue. Anthropic alone agreed in August to spend $45 billion on Nscale computing capacity over six years. Losing — or even just delaying — one of its two anchor customers on a flagship project is exactly the kind of execution risk that can spook IPO investors mid-roadshow.

Nscale's UK ambitions have already taken one hit this year: OpenAI previously dropped out of an earlier agreement to lease space at several planned Nscale UK data centers. The company's Norway site, a joint venture with Aker ASA, is also reportedly running about six months behind schedule, with just over 6MW of a planned 30MW currently operational.

The episode lands at a sensitive moment for the neocloud sector — companies that lease out AI computing capacity, often financed with heavy debt against future contracts. CoreWeave's stock fell 25% last week, its steepest weekly drop since November. Australia's Firmus scrapped its own planned listing after failing to attract investor demand at its target valuation. Analysts reading the Nscale news say it reflects "capital discipline rather than a retreat from AI spending" by Microsoft, but it still narrows the window for other AI infrastructure firms hoping to go public on favorable terms.

It also reinforces a shift that has been building all year: grid capacity, not chip supply, is now the binding constraint on data center growth. Satya Nadella has said as much publicly, framing power — not a compute glut — as Microsoft's biggest current bottleneck. Bain & Company research cited alongside the Nscale reporting found utility connection timelines now stretching to five years for some projects, regardless of how many GPUs a company can get its hands on.

Source: Reporting based on The Telegraph, confirmed by Bloomberg, October 18, 2026.