Is xAI a neocloud now?

In a surprising move, xAI has entered into a partnership with Anthropic, the creators of Claude, resulting in Anthropic acquiring all available computing power from xAI’s Colossus 1 data center. This significant deal, estimated to be worth billions, allows Anthropic to immediately increase its operational limits, marking a pivotal moment for xAI as it transitions from a consumer of computing power to a key provider. The partnership could be interpreted as a competitive stance against OpenAI amidst ongoing legal disputes. However, Elon Musk clarified on X that xAI had recently shifted its training operations to a newer facility, Colossus 2, rendering the original data center surplus to requirements. This strategic decision appears to be driven by immediate financial logic, particularly as xAI's flagship product, Grok, has experienced a sharp decline in usage following earlier controversies in image generation. By collaborating with Anthropic, xAI not only shores up its financial stability during a crucial phase, especially as it aligns with SpaceX for a potential IPO, but it also sends a clear signal about Musk's priorities. The arrangement implies that xAI might be more focused on constructing data centers than on developing AI models themselves. This contrasts with other major tech firms like Google and Meta, which are simultaneously training models and expanding their own data center capabilities. Both Sundar Pichai of Google and Mark Zuckerberg of Meta have indicated that their companies prioritize leveraging computing resources for internal AI development over renting them out, showcasing a different approach to resource management. As the demand for computing power surges, these companies are keenly aware that a shortage could hinder their ability to innovate. In positioning itself as a neocloud provider, xAI's strategy involves purchasing GPUs from suppliers like Nvidia and leasing them to AI developers such as Anthropic. This model, while ambitious, presents challenges due to fluctuating demand and the constraints imposed by chip manufacturers. Notably, xAI's valuation reached $230 billion during its January funding round, while competitors like CoreWeave, which manage similar computing capacities, are valued significantly lower. Looking to the future, Musk has ambitious plans that include potentially deploying data centers in space by 2035 and creating proprietary chips at the Terafab. However, these ventures must navigate the complexities of the neocloud market. Earlier ambitions in software and innovative projects, such as the Macrohard initiative, suggest that while xAI is currently focused on selling compute resources, its future endeavors in software development might be constrained by this business model.