Elon Musk’s AI startup xAI ends talks on $10 billion server deal with Oracle

Elon Musk’s artificial intelligence startup xAI and tech giant Oracle have ended their discussion over a potential $10 billion server deal,  The Information reported on Tuesday. Following the news, shares of Oracle saw a significant dip, falling as much as 4.8%.

The discussions were aimed at expanding an existing arrangement where xAI has been renting Nvidia AI chips from Oracle’s cloud services for xAI’s data center in Memphis, Tennessee. Multiple sources involved in the talks were cited in the report.

“Elon Musk appears to be a firm believer in the saying “If you want something done right, do it yourself.” He signaled that today in a post on X, as he confirmed our scoop that his artificial intelligence startup, xAI, had decided to build its own AI data center rather than getting Oracle to do it,” The Information reported.

The Wall Street Journal also reported on the matter, referencing Musk’s post on X (formerly Twitter), which confirmed the end of negotiations. Musk stated that xAI is focused on building “the most powerful training cluster in the world by a large margin,” which reduces their reliance on Oracle’s cloud technology.

Musk also emphasized that xAI would independently build a system using Nvidia’s H100 graphics processing units to achieve the fastest completion times.

“The reason we decided to do the 100k H100 and next major system internally was that our fundamental competitiveness depends on being faster than any other AI company. This is the only way to catch up. Oracle is a great company and there is another company that shows promise also involved in that OpenAI GB200 cluster, but, 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.”

xAI contracted for 24k H100s from Oracle and Grok 2 trained on those. Grok 2 is going through finetuning and bug fixes. Probably ready to release next month.

xAI is building the 100k H100 system itself for fastest time to completion. Aiming to begin training later this month.…

— Elon Musk (@elonmusk) July 9, 2024

A source familiar with the matter told Reuters that the specific capacity Oracle was negotiating with xAI has been allocated to another customer. The source also mentioned that Oracle continues to engage with xAI regarding its infrastructure needs, despite the halted talks.

The Information reported that a multi-year agreement to rent Nvidia processors from Oracle for a planned supercomputer was underway. However, the negotiations were stalled due to Musk’s ambitious demands for rapid supercomputer development, which Oracle deemed unrealistic. Additionally, concerns were raised about the power supply at xAI’s preferred location.

xAI already holds a contract with Oracle to train AI models in its Gen2 Cloud, but this new development suggests a shift in strategy as Musk’s startup pursues greater independence in its AI training capabilities.

We reported the story back in May. The news came 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.

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.