Elon Musk’s AI startup xAI nears $10 billion deal to rent Oracle’s AI servers, report

Elon Musk’s artificial intelligence startup xAI is in talks with Oracle executives about spending $10 billion to rent cloud servers from the company over the years, The Information reported on Tuesday, citing a person involved in the ongoing discussions.

Should the negotiations come to fruition, the deal would make xAI one of Oracle’s largest customers, the report said. The news comes less than two weeks after reports that xAI was looking to raise $6 billion in new funding at a $18 billion valuation in a bid to take on OpenAI, Google, and other AI companies.

The sources told The Information that the ongoing cloud negotiations between the two companies are still in progress, and there’s no assurance the two will sign a deal.

“The deal would make xAI one of Oracle’s largest customers as Musk tries to catch up quickly to rivals that have already spent billions of dollars on specialized servers needed to train and run conversational AI. The proposed $10 billion deal would be similar in size to the deals OpenAI and Anthropic, two of the leading AI developers, struck with Oracle’s bigger cloud competitors. It comes as xAI is finalizing a $6 billion equity funding round to help pay for cloud costs. The proposed cloud deal implies xAI would need to raise considerably more capital down the line,” The Information reported.

Late last year, Oracle’s co-founder Larry Ellison, a self-described close friend of Musk, said that xAI had signed a contract to train AI models in Oracle’s Gen2 Cloud.

Earlier this month, Oracle introduced an update to its database technology, aiming to enhance its compatibility with artificial intelligence, as per reports.

XAI holds the distinction of being Oracle’s largest H100 customer, utilizing over 15,000 of Nvidia’s AI chips, according to insights from the report. The H100 chip is a product of Nvidia’s AI innovation.

In recent developments, Musk announced that xAI plans to roll out an upgraded version of its chatbot, Grok, to early testers and existing users via his social media platform X.

Launched last year, xAI promises to be a beacon of “maximum truth-seeking AI.” Grok’s rollout for Premium+ subscribers earlier signaled Musk’s intent to disrupt the AI landscape, a sentiment echoed in his podcast conversation with Lex Fridman, where he lamented OpenAI’s departure from its nonprofit, open-source roots.

Musk first announced the launch of Grok on November 6, 2023, adding that the AI chatbot will possess a “rebellious streak” and bring a sense of humor and sarcasm, which sets it apart from rival chatbots like ChatGPT and Google Bard.