Musk’s xAI Calls off $10 Billion Oracle Server Deal

Musk’s xAI Calls off $10 Billion Oracle Server Deal

Elon Musk's AI company xAI has ended talks with Oracle to expand their server rental agreement, opting instead to build its own cutting-edge AI data center. The decision will undoubtedly have a significant impact on the AI arms race, as xAI aims to accelerate development and catch up with industry leaders.

Musk confirmed the decision in a post on X, formerly Twitter, explaining that xAI's "fundamental competitiveness depends on being faster than any other AI company." He emphasized the need for speed and control, adding, "When our fate depends on being the fastest by far, we must have our own hands on the steering wheel, rather than be a backseat driver."

The talks between the companies reportedly valued at $10 billion, would have seen xAI renting specialized NVIDIA AI chips from Oracle over multiple years. Sources close to the matter revealed that the talks stalled due to Musk's demands for faster implementation than Oracle deemed feasible, as well as concerns over power supply at xAI's preferred location.

Instead of relying on Oracle's infrastructure, xAI had decided to take matters into its own hands. In true Musk fashion, the company plans to construct a massive AI data center in Memphis, Tennessee, leveraging NVIDIA chips supplied by Dell and Supermicro. This facility, dubbed the "Gigafactory of Compute" by Musk, will house an impressive 100,000 Nvidia GPUs — which will be critical for training xAI's next-generation model, Grok 3.0.

The ambitious project underscores xAI's determination to close the gap with competitors like OpenAI and Anthropic, which have invested billions in specialized chips for AI model training and deployment. Musk has previously indicated that the majority of xAI's recent $6 billion funding round will be allocated to expanding its compute capacity.

Elon Musk’s xAI Secures $6B in Series B Funding, Valuing the Company at $24B
The fresh capital will help xAI bring its first products to market, build advanced infrastructure, and accelerate research and development for future technologies.

Despite the end of expansion talks, xAI's existing arrangement with Oracle remains intact. Musk noted that xAI's current capacity at Oracle has grown to 24,000 chips, up from around 16,000 in May. These resources are being utilized to train Grok 2.0, which Musk expects to release next month after fine-tuning and bug fixes.

Chris McKay is the founder and chief editor of Maginative. His thought leadership in AI literacy and strategic AI adoption has been recognized by top academic institutions, media, and global brands.

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