Microsoft pulled out of a U.K. data center deal, clouding Nscale's IPO hopes

Microsoft $MSFT has backed out of an agreement to lease space at an Nscale data center in Loughton, Essex, handing the British AI infrastructure firm a setback just ahead of its stock market debut, The Telegraph reported, according to Bloomberg.

Nscale did not give Bloomberg a specific reason for the withdrawal. The Loughton project had already faced delays from power constraints, according to Bloomberg. Nscale had planned to bring the site online before the year ends, but the company said grid challenges in the U.K. will prevent that, according to The Wall Street Journal.

Last year, Nscale disclosed its acquisition of a Loughton site on London's edge, where it planned to build its first data center in the U.K., according to the Journal. Microsoft was set to be the tenant of the 50-megawatt site, which was designed to house roughly 23,000 Nvidia $NVDA GB300 chips that would drive its Azure cloud services.

A Microsoft spokesperson stated that the firm is still dedicated to working with Nscale and that its exit concerns only one site, according to the Journal.

"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 in an emailed statement, according to Bloomberg. "Our relationship with Microsoft remains strong and long-term, and this unfortunate London-wide grid issue has no impact on our other contracts."

Nscale aims to bring in up to $3 billion through an initial public offering that could happen as early as this month, according to Bloomberg. The company submitted registration paperwork to the U.S. Securities and Exchange Commission last month ahead of the planned listing, according to the Journal. It also secured $3.36 billion last month by issuing convertible loan notes in a pre-IPO round that hedge fund Third Point headed, according to the Journal.

Nscale's flagship data center in Glomfjord, Norway, is also running six months behind schedule, with 6.4 megawatts of a planned 30 megawatts in operation. The company's customer contracts include performance milestones and delay penalties, and Nscale has said failures to meet them could trigger substantial penalty payments or customer remedies.

Nscale said in its IPO filing that Microsoft and Anthropic account for about 85% of its $103 billion in total contract value. Of that total, $2.6 billion was active as of the end of August, the company said. Nscale also said Anthropic may terminate a tranche of its agreement without liability if Nscale fails to deliver it within a specified period after the expected delivery date.