An Nvidia Corp. logo at the refreshment area at the ai-Pulse conference at Station F technology campus in Paris, France, on Friday, Nov. 17, 2023. The race for AI dominance has intensified geopolitical rivalries as countries seek to harness the technology’s potential for economic growth and influence.
(Bloomberg) -- Nscale, a little known British data center company that spun out of a crypto miner last year, has found itself at the forefront of a massive artificial intelligence-fueled data center boom.
Nvidia Corp. is investing £500 million ($683 million) in Nscale, Chief Executive Officer Jensen Huang told reporters in London on Wednesday, and said the UK-based company would be part of an AI infrastructure buildout valued at as much as £11 billion. OpenAI named it as a partner for Stargate UK, an offshoot of an even larger US effort to increase the capacity to run AI systems. Microsoft Corp. said this week it would rent $6.2 billion in computing power from Nscale in Norway.
The 16-month-old British startup is part of a new generation of “neocloud” firms that run and lease capacity in data centers specially designed for AI and other data-intensive workloads, often filled with advanced chips known as graphics processing units. They’re raking in considerable sums from investors and creditors to build these centers despite being relative newcomers with limited experience. Their arrival underscores how desperate Silicon Valley titans and governments have become to get their hands on more AI computing capacity.
It’s a high-stakes business. Nscale is now on the hook for securing the Nvidia GPUs that dominate the AI industry, finding the land for its facilities and sourcing the vast volumes of electricity necessary to power their centers. It’ll also be expected to regularly replace worn-out or older-generation hardware to meet customers’ demand for the latest and greatest products, which may require financing every three to five years.
Nscale posted a video on LinkedIn of its CEO Josh Payne meeting Nvidia CEO Jensen Huang.
Nscale CEO Josh Payne framed the company’s UK announcements this week — part of £31 billion in US investment pledges made around President Donald Trump’s visit to the country — as a victory for British tech. “As a UK-based company, we’re showing how we can be makers, not takers, of the most important technology of our time,” he said in a statement.
“I’ve never seen a startup take off like that before,” Nvidia’s Huang said in a video posted to LinkedIn, in which he signs a bottle of whisky to congratulate Payne.
Nscale was spun out of Arkon Energy, an infrastructure provider for cryptocurrency mining, and officially launched in May 2024. CoreWeave Inc., which similarly counts Microsoft and OpenAI among its partners, also has its roots in crypto, giving it experience building high-performance data centers. Nebius Group NV, a Dutch cloud computing infrastructure company that emerged from the Russian internet giant Yandex, signed a deal this month to provide Microsoft with AI capacity for as much as $19.4 billion.
The selling point for neoclouds is the fact that they offer companies more flexible access to high-performance chips and other AI-related services without the capital expenditure. Unlike traditional data center operators, companies like Nscale and Coreweave provide the AI computing power themselves: Nvidia chips all ready to go. They also offer shorter-term leases than the traditional firms that require multiyear commitments.
While much of the demand for neoclouds maps back to tech giants like Microsoft, OpenAI, Google and Meta Platforms Inc. as they jostle for AI dominance, the business model can theoretically democratize access to hardware and make it easier for startups to develop AI services without having to build their own infrastructure.
Nscale has shared little about its financing plans. Last December, the company announced a $155 million financing round led by Sandton Capital Partners, a New York-based private equity firm. A month later, the startup announced it was dedicating £2 billion to computing facilities in the UK. The company said it was working with Open Innovation AI, a firm based in the United Arab Emirates, but didn’t share exactly how it was financing the projects.
In April, Bloomberg News reported that Nscale was attempting to raise about $2.7 billion in debt to fund its efforts on the back of a pending partnership with TikTok owner ByteDance Ltd. At the time, Nscale said it wouldn’t comment “on speculation.”
A representative for Nscale said the £2 billion UK pledge is separate from the Stargate UK initiative announced this week, but declined to comment further.
A potentially major headwind for the burgeoning neocloud industry: Soaring demand for AI chips in recent years has meant they could charge a premium to companies that needed access to the technology. But supply constraints have since eased, according to research from the Uptime Institute, an IT infrastructure advisory firm. Neoclouds that once commanded tens of dollars per GPU hour, the industry’s standard billing unit for using a single AI chip, are now charging a couple of dollars.
If they want to avoid a race to the bottom on pricing, they’ll need to differentiate themselves with add-on services or industry specializations, said Ben Baldieri, founder of AI hardware newsletter . He expects significant consolidation as smaller players that struggle to service large customers go out out of business and second-hand AI hardware comes up for sale at a discount.
In Norway, Nscale also partnered on a project with OpenAI and Aker ASA, an energy conglomerate controlled by Norwegian billionaire Kjell Inge Rokke. The site is located above the Arctic circle, and was originally earmarked for a green ammonia factory. Aker shelved the factory plans earlier this year — leaving a construction-ready site, with access to 230 megawatts of clean hydropower.
Nscale’s execution on the Norway project gave the UK government confidence, Kanishka Narayan, an undersecretary for Britain’s technology department, said in a press briefing on Tuesday. “It’s clearly a credible company,” he said.
--With assistance from Kari Lundgren and Ian King.
(Updates with comment from Jensen Huang in sixth paragraph)
