Microsoft has backed out of a deal to anchor Nscale's first British data center, the Telegraph reported Sunday, a blow to the AI infrastructure company as it prepares for a U.S. stock market listing. The British paper reported that Microsoft, one of Nscale's two largest customers, recently told the company it was ending the agreement, which was announced last year.

Microsoft had agreed to rent 23,000 Nvidia AI chips at the site in Loughton, Essex, and was the only customer Nscale had announced there. The project was meant to come online next year but has been repeatedly delayed, with grid officials reportedly telling Nscale they don't expect to supply it with power until the 2030s.

An Nscale spokesperson told the Telegraph the company remains "committed to both the Loughton project and the UK" and is "exploring alternative power sources for the site, in addition to other expansion sites in the UK." The spokesperson added: "Our relationship with Microsoft remains strong and long-term, and this unfortunate London-wide grid issue has no impact on our other contracts." Microsoft did not comment to the Telegraph.

Microsoft's share of the backlog

Nscale rents out Nvidia chips that AI developers use to train models and run inference. More than 40% of its $103 billion in contracted revenue comes from Microsoft, though the Loughton deal is believed to be a small part of that, the Telegraph said. Anthropic is another major customer.

The company filed for its IPO on Sept. 18. It was last privately valued at $15 billion, and the Telegraph said the listing could be worth up to $35 billion.

Microsoft's commitment to Loughton was part of £22 billion in U.K. investments the company pledged during President Donald Trump's state visit last year. At the time, Prime Minister Keir Starmer called it a step toward Britain "becoming a world leader in AI."

Rival AI clouds sell off

The withdrawal comes as debt-funded data center developers, often called neoclouds, face a selloff on concerns they will struggle to repay borrowing as interest rates and inflation rise. CoreWeave and Nebius have seen their shares and bonds slump, and Australia's Firmus, which had sought $10 billion in financing to buy Nvidia chips, cancelled plans for a $20 billion IPO earlier this month, citing market conditions.

Nscale has also run into delays at its flagship data center in Norway, reportedly leading to heavy penalties. In April, OpenAI suspended plans for a Stargate facility with Nscale on Tyneside, citing high U.K. electricity prices.

Nvidia CEO Jensen Huang praised the company at an event in London on Wednesday. "You could be the most valuable UK startup they have created in the last 10 years," Huang said, according to the Telegraph.

Nvidia's $1 billion share of Nscale's $3.36 billion pre-IPO financing is expected to fund in mid-November, with the convertible notes set to turn into shares once the IPO completes, The Latent previously reported. Bernstein analysts said at the time that only $2.6 billion of Nscale's contracted value was active.