Oracle xAI Cloud Deal Falls Through, Musk's Startup to Build Own Data Center

Tech giant Oracle and Elon Musk's AI startup xAI have ended talks on a potential $10 billion cloud computing deal, according to a recent report. The news has sent Oracle's stock tumbling, with shares falling by 3% to close at $140.68 on Tuesday.

The discussions, which had been ongoing since May, centered around a multi-year agreement for Oracle to provide cloud servers to xAI for training large language models. However, the two companies have now decided to part ways on this expanded arrangement.

Elon Musk, founder of xAI, explained the decision in a post on X, saying, "Our fundamental competitiveness depends on being faster than any other AI company. This is the only way to catch up." 

As a result, xAI has opted to build its own data center rather than relying on Oracle's cloud infrastructure. Musk’s firm is set to build its own AI data center in Memphis, Tennessee, using NVIDIA chips supplied by Dell and Supermicro.

“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,” said Musk.

Musk’s AI startup plans to purchase 100,000 NVIDIA  processors directly to construct what Musk claims will be "the most powerful AI training cluster in the world".  

On the other hand, the Oracle-Microsoft deal involves 100,000 of Nvidia's upcoming GB200 chips. The cluster is expected to be ready by the second quarter of 2025. Oracle will purchase the chips from Nvidia and rent them to Microsoft, who will then make them available to OpenAI.

xAI has already acquired 24,000 H100 chips from NVIDIA through Oracle and is training its upcoming Grok 2, slated for release next month.