- Elon Musk’s AI startup, xAI, has ended talks with Oracle on a potential $10 billion server deal, opting instead to build its own system using Nvidia’s H100 GPUs.
- Musk’s shift to internal AI-training infrastructure signals a strategic shift that could impact future relationships between AI startups and cloud service providers.
OUR TAKE
By opting to build AI infrastructure in-house, Musk is not only challenging the limits of speed and efficiency but also shaking up the cloud computing giants. This audacious shift exposes the fragility of even the most lucrative tech partnerships and underscores the relentless drive for dominance in AI.
–-Ashley Wang, BTW reporter
What happened
Elon Musk’s AI startup, xAI, has terminated discussions with the tech giant Oracle on a potential $10 billion server deal, according to sources. Previously, xAI has been renting Nvidia’s AI chips from Oracle’s cloud services. The termination halts plans to expand the existing arrangement. Musk posted on X (former Twitter) that xAI would build a system using Nvidia’s H100 graphics processing units independently to ensure the “fastest time to completion.”
The end of the talk directly impacted Oracle’s stock, which dropped as much as 4.8% following the news.
The negotiations ended due to several issues, including Musk’s demands for a supercomputer to be built faster than Oracle deemed feasible and concerns over inadequate power supply at xAI’s preferred location. Sources revealed that “The company is always in discussion with customers about upcoming capacity and continues to engage with xAI on its infrastructure needs.”
Also read: What venture capital fund is investing in xAI?
Also read: What does XAI mean?
Why it’s important
In May, Larry Ellison, Oracle Chairman, announced a deal to provide cloud infrastructure to xAI for training AI models, though he did not disclose the contract’s value or duration. Despite these plans, Musk’s decision to construct AI-training infrastructure internally underscores the challenges cloud providers face, even with available capital.
The following drop in Oracle’s stock prices reflects the market’s reaction to the potential loss of a lucrative revenue stream from xAI, highlighting the intense competition and logistical challenges in the AI and cloud computing sectors. Musk’s move to internalise xAI’s AI training capabilities may signal a shift in strategy that could influence future dealings between AI startups and cloud service providers.
