Is xAI a neocloud now?

Source: TechCrunch

Partnership Overview

On Wednesday, xAI and Anthropic announced a surprise partnership that has the Claude‑maker buying out “all of the compute capacity at xAI’s Colossus 1 data center,” roughly 300 MW, allowing Anthropic to immediately raise its usage limits. It’s a huge deal for xAI, likely worth billions of dollars. More importantly, it immediately monetized one of the company’s most impressive accomplishments, turning xAI from a consumer to a provider of compute.

Short‑Term Logic

xAI’s existing products are mostly focused on Grok, which has seen plummeting usage since the image‑generation debacles earlier this year. If xAI’s data‑center buildout exceeds what Grok needs, partnering with Anthropic adds significant revenue to the balance sheet—especially useful as the company, now combined with SpaceX, speeds toward an IPO.

Having Anthropic lined up as a customer also makes it easier to believe that SpaceX’s orbital data‑center play might actually work.

Strategic Implications

Beyond the short‑term benefit, the Anthropic partnership sends an unusual message about where Elon Musk’s priorities really lie. It suggests the company’s real business may be more about building data centers than training AI models.

It’s rare to see a major tech company treat compute resources this way. Companies like Google and Meta, which also train models, are building more data centers but typically prioritize using their own GPUs for AI products rather than renting them out.

• Sundar Pichai admitted that Google Cloud revenue was lower than it could have been because the company was “capacity constrained,” and Google chose AI products over renting GPUs.
• Meta spun up an entirely new cloud apparatus to ensure enough GPU power for Zuckerberg’s AI ambition, calling the effort “Meta Compute” and emphasizing its strategic importance.

xAI as a “Neocloud” Business

By focusing on data centers (earthbound and otherwise), xAI is positioning itself more like a neocloud business: buying GPUs from Nvidia and renting them out to model developers like Anthropic. This model is more difficult, squeezed by both chip suppliers and shifting demand cycles.

• xAI was valued at $230 billion in its January funding round.
• CoreWeave, which oversees a comparable quantity of computing power, is worth less than a third of that.

Musk’s version of a neocloud is more ambitious. Some data centers might be in space—at least by 2035, if plans hold. xAI will be making its own chips at the Terafab, which will reduce—but not eliminate—Nvidia’s pricing power. The basic economics of the neocloud business, however, remain unchanged.

Future Ambitions

At the February all‑hands meeting, xAI unveiled its orbital data‑center project and teased significant software ambitions:

• A partnership with Cursor to enhance coding capabilities.
• The “Macrohard” project, aiming to leverage compute into full‑scale digital twins.

These long‑horizon projects require committed computing resources to succeed. As long as xAI is selling large quantities of compute to competitors, it’s hard to see how these new ambitions could thrive.