Microsoft has withdrawn from a data center deal in Essex, which has dealt a blow to the listing plans of the British company Nscale, which are worth billions of dollars.

As one of the two largest customers of Nscale, this American technology giant recently notified Nscale that it will terminate the cooperation agreement announced last year.

For Nscale, this is a major setback: Microsoft was originally the anchor tenant of the company's first UK data center located in Loughton, Essex.

Despite the brutal selling off in the AI computing power sector, Microsoft's decision may still disrupt the progress of Nscale towards a Wall Street listing worth up to $35 billion (approximately £26 billion).

Last week, there were concerns in the market that data center developers in the same industry would struggle to repay their debts amid rising interest rates and inflation, leading to a general slump in the stock prices of related companies.

The ultimate outcome of this listing attempt will be seen as a crucial test of investors' ongoing interest in highly indebted AI companies; its success or failure will also affect the UK's overall strategy in this technological field.

Several senior British officials once presented the Essex data center project as a landmark project representing the UK's ambitions of AI, and even lobbied local MPs to facilitate the project's approval.

Microsoft's support for this project is part of the £22 billion in investments it promised to make in the UK during Donald Trump's state visit last year. Sir Keir Starmer stated at the time that this was a step for the UK to “become a global leader in AI”.

This data center site is equipped with thousands of high-end NVIDIA AI chips, and was originally planned to be put into operation next year.

However, the project has been postponed several times, and the power grid management party has informed Nscale that power supply is not expected to be available until the 2030s.

After Microsoft withdrew its cooperation, the site is currently on hold. Microsoft was once the only publicly announced contracting customer for this project, agreeing to lease 23,000 NVIDIA AI chips from the site. The current financing logic in the data center industry heavily relies on AI giants making long-term production capacity procurement commitments.

Nscale has a total contracted revenue scale of 103 billion US dollars, of which over 40% comes from Microsoft. However, it is believed that the aforementioned British project accounts for only a very small portion of that amount. Anthropic is another of its major core customers.

The board of directors includes heavyweight figures such as former Facebook executive Sheryl Sandberg and Sir Nick Clegg, and the private valuation was previously $15 billion.

The company is planning to raise billions of dollars through a public offering, with the expected valuation upon listing expected to exceed twice the private placement valuation, making it one of the most valuable AI enterprises in the UK.

However, the current plan coincides with a wave of large-scale selling in the AI infrastructure sector, and doubts about the sustainability of the market's enthusiasm for data center construction are growing.

Technology analysis firm Gartner stated last week that if the AI craze fails to deliver the expected value, there could be $3.5 trillion in related assets written down by 2030.

In addition to that, the flagship data center of Nscale located in Norway has also encountered delays, and it is reported that high penalties have been incurred as a result.

At the beginning of this month, Australian peer Firmus cancelled its $20 billion IPO plan on the grounds of market conditions. The stock and bond prices of other "new cloud" companies such as CoreWeave and Nebius also tumbled significantly.

New cloud companies rely heavily on a new round of investment and debt to maintain their construction pace, and the continuously rising market interest rates have further sparked concerns about the sustainability of their business models.

Nscale A spokesperson stated: "We remain committed to advancing the Loughton project and our market presence in the UK. We are currently searching for alternative power sources for that site and planning for other expansion sites within the UK. Our partnership with Microsoft is stable and long-term, and the power grid issues across London will not affect our other contracts."

Microsoft has not commented on this matter.

Nscale was founded two years ago by Australian entrepreneur Josh Payne, who used to work as a coal miner. The company signed large contracts without any prior record of data center construction experience, which has already drawn external scrutiny.

But NVIDIA CEO Jensen Huang praised Nscale at an event in London on Wednesday: “This could be the most valuable startup to emerge in the UK in the past 10 years.”

High electricity prices and long waiting periods for grid connection have been identified as major obstacles to the construction of AI infrastructure in the UK.

In April this year, OpenAI suspended the plan to collaborate with Nscale to build the "Stargate" AI facility in Tyne and Wear on the grounds that electricity prices in the UK were too high.

Nscale has received support from technology giants such as NVIDIA and is positioned as a "sovereign-level" data center service provider in the UK.

Responsible Editor: Jiang Xuesi