Microsoft Walked Out of Nscale's UK Data Centre Mid-IPO
There is a particular kind of silence that descends on a company when its biggest customer walks out mid-pitch. No press release. No "strategic realignment." Just a terminated agreement, reported on a Sunday morning, while both parties decline to pick up the phone.
That is where Nscale woke up today. Microsoft — one of the British neocloud's two largest customers, and the anchor tenant earmarked for its first UK data centre — has pulled out of the Loughton, Essex deal, according to the Telegraph, as reported by Reuters this morning. The paper did not say why. Neither company would comment. And Nscale is supposed to be launching a $3bn IPO within weeks.
Let that sink in: the customer underpinning your float just cancelled.
The anchor tenant just left the building
The bare facts, as Reuters carried them at 10:55 UTC: Microsoft "recently terminated its agreement" for the Loughton data centre. The Telegraph, which broke the story, offered no reason for the withdrawal. Microsoft and Nscale did not respond to Reuters' requests for comment — the polite journalistic way of saying both companies went very quiet on a Sunday.
The fuller Telegraph account, carried by the Business Times, adds the texture. The Loughton site has been contending with a series of delays. Authorities have told Nscale they do not expect a power supply to the facility until the 2030s. Microsoft had been lined up as the anchor tenant of Nscale's first British data centre — and, per the company's own IPO filing, Microsoft and Anthropic together account for around 85 per cent of its contracts.
Eighty-five per cent. Read that again. One of the two customers that make up nearly the entire contracted book has just walked away from the flagship UK project — and the IPO prospectus is going out to investors anyway.
We fetched the full Reuters dispatch and the Business Times' fuller account of the Telegraph's story ourselves this morning. Both agree on the one detail that matters most: no explanation, from anyone, anywhere.
Photo: Rows of server racks at the National Energy Research Scientific Computing Center (NERSC). File photo — Nscale's own sites are still largely under construction. Credit: Derrick Coetzee / Wikimedia Commons (CC0 1.0).
A site with no power until the 2030s
Strip away the IPO gloss and Nscale's problem is brutally physical. You cannot run AI models on a data centre that has no electricity.
The Observer's weekend investigation — the most detailed public account of Nscale's operations — found that UK Power Networks has told the company the Loughton grid connection won't have enough power until the early 2030s. The flagship site at Glomfjord in Norway is roughly six months behind schedule, has suffered fires, and at one point housed part of its construction crew on a former migrant-accommodation barge. That is not a metaphor. A barge.
The prospectus, per the Observer's reporting of Bloomberg's account, lists five active data centres with 55 megawatts of live capacity, and twelve more in development. Against that, $103bn in total contracted value — up from $100m in two and a half years, per Reuters. The ratio of contracts signed to megawatts actually switched on is the kind of number that makes credit analysts reach for the antacid. (For a primer on the business model, see our explainer on what a neocloud actually is.)
Microsoft's own chief executive has, inadvertently, explained the industry's predicament better than any analyst. Satya Nadella admitted in a recent interview on the Bg2 Pod that the company currently has GPUs sitting idle because it doesn't have the power available to plug them in. The chips exist. The electricity doesn't. When the world's second-largest cloud company can't find a socket, a startup promising tens of megawatts in Essex was always going to be an awkward conversation.
The neocloud model is coming apart
Nscale's timing could hardly be worse. The entire neocloud trade — borrow colossal sums, buy Nvidia chips, rent out compute — is having its worst fortnight on record.
Start with the scoreboard. Firmus, the Australian neocloud backed by Nvidia and Blackstone, pulled a $30.5bn IPO the week before last. AirTrunk canned its Singapore listing days later. CoreWeave, the listed poster child of the model, saw the cost of insuring its debt against default soar; some of its unsecured bonds due in 2032 traded below 80 cents on the dollar, and the shares fell 15 per cent in a single Wednesday session — a default-insurance blowout we covered here.
The analysts have stopped mincing words. Gil Luria, head of technology research at D.A. Davidson, told the Observer that Nscale is "comparable to those companies" that just pulled their listings, adding: "It's going to be very hard to imagine that that's the market that they want to come into."
Then he went further — much further. "I don't think that the valuation itself is ambitious in the context of the other neoclouds," Luria said. "But having said all that, I'm not sure neoclouds are a good business to begin with. I'm not sure giving them any type of valuation makes sense at all, and that's what you're seeing in the market right now."
Read that quote twice. A senior Wall Street technology analyst is not saying Nscale is overvalued. He is saying the business model itself might not deserve a valuation. At all. On Bloomberg earlier this week, Luria added that CoreWeave is "destroying value at every turn" if it borrows at 9 per cent to earn 5 per cent — arithmetic that applies, uncomfortably, to every debt-fuelled GPU landlord in the sector.
Goldman Sachs estimates roughly $1tn of global AI investment this year. The question haunting credit markets is how much of it rests on contracted revenue that evaporates the moment a hyperscaler changes its mind. This morning, we got our answer for one contract.
Photo: 400kV transmission pylons near Dungeness, Kent — the kind of grid infrastructure UK data centres are queuing years behind. File photo. Credit: Tim Sheerman-Chase / Wikimedia Commons (CC BY 2.0).
Microsoft is still buying — just not from Nscale
Here is the part Nscale's bankers will not want to dwell on: this is not Microsoft retreating from AI infrastructure. This is Microsoft being selective about whose infrastructure it trusts.
DatacenterDynamics reports that Microsoft signed a $9.7bn GPU access deal with Iren this very week, alongside a new multi-billion-dollar agreement with Lambda for tens of thousands of GPUs, including Nvidia's latest GB300 NVL72 systems. DCD estimates Microsoft has signed some $33bn in compute deals in October alone, spanning Nebius, CoreWeave and Lambda — and, notably, Nscale itself.
"It's great to watch the Microsoft and Lambda teams working together to deploy these massive AI supercomputers," Lambda chief executive Stephen Balaban said of that deal. "We've been working with Microsoft for more than eight years, and this is a phenomenal next step in our relationship."
Eight years of working relationship. That is the currency Microsoft is spending — on proven operators, not on power connections that arrive in the 2030s. On the company's Q1 2026 earnings call, chief financial officer Amy Hood was blunt about demand: "We are, and have been, short now for many quarters. I thought we were going to catch up. We are not. Demand is increasing."
So Microsoft is desperate for capacity — and still walked away from Loughton. That tells you everything about how Redmond rates the execution risk.
What the $35bn IPO now faces
Let's be blunt about what this means. Nscale confidentially filed for a US listing last month targeting a $3bn raise at a $35bn valuation, per Bloomberg's reporting via the Observer — we covered the filing's key numbers when it landed. Its board reads like a Davos seating plan: Nick Clegg, Sheryl Sandberg, former Yahoo president Susan Decker. The prospectus leans on $103bn of contracted value, 85 per cent of it from two customers.
Now one of those two customers has terminated the agreement underpinning the company's first British data centre, weeks — possibly days — before the roadshow. Whether Nscale can still price anything close to $35bn with its anchor tenant walking out, its flagship site six months late, and its UK power connection a decade away will decide whether neoclouds were a financing innovation or a financing mirage. Our money is on the bankers earning their fees the hard way.
There is a narrower, more technical defence available to Nscale: the Loughton termination is one site, not the whole relationship, and Microsoft remains a named major customer in the prospectus. Fair. But IPOs are not priced on technicalities. They are priced on momentum and trust, and both just took a hit that no amount of contracted-value arithmetic can paper over.
The honest summary: a startup selling the future walked into the present and found the sockets empty.
Sources
Reuters (Oct 18, 2026) for the termination report; the Telegraph's reporting via Reuters and the Business Times for the site delays and the 2030s power timeline; the Observer (Oct 18, 2026) for the IPO filing details, the Glomfjord delays, board composition and the Gil Luria interviews, with valuation figures via Bloomberg; DatacenterDynamics for Microsoft's Iren, Lambda and wider October compute deals, the Nadella Bg2 Pod remarks and the Amy Hood earnings-call quote; Nscale's IPO prospectus figures as reported by the above outlets. Microsoft and Nscale did not respond to requests for comment. Images via Wikimedia Commons, as credited.
TechPulse USA Newsroom covers the business of AI — the data centres, the money and the machines. We read the filings so you don't have to.
Update, Oct. 18: Nscale's answer — and what Microsoft didn't say
Nscale has now answered, and Microsoft hasn't. After the Telegraph story broke, Nscale said it remained committed to developing the Loughton site and was exploring alternative power sources alongside more UK expansion opportunities — and that its relationship with Microsoft "remained strong" and the electricity problems would not affect its other contracts. Microsoft has said nothing publicly; both companies declined Reuters' requests for comment outside regular business hours. So the scorecard reads: one side projecting calm, the other side silent. Nscale can afford to sound confident — what it cannot afford is for the silence to last until pricing day.
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