San Francisco, CA – July 11, 2024 - Negotiations between Elon Musk's artificial intelligence division, xAI, and Oracle Corporation (NYSE: ORCL) over a potential $10 billion agreement to rent cloud servers powered by NVIDIA's (NASDAQ: NVDA) H100 chips have abruptly come to an end. xAI has chosen to buy the required hardware straight from Supermicro (NASDAQ: SMCI) and Dell Technologies (NYSE: DELL), as per a recent announcement on the social networking platform X by none other than Elon Musk himself.
A Change in AI Infrastructure Strategy
The move represents a major shift in direction for xAI, which was on the verge of becoming into one of Oracle's biggest cloud customers. The agreement with Oracle, which was first announced in May, was viewed as a critical step for xAI to use Oracle's Gen2 Cloud infrastructure to train and implement its AI models, enabling it to catch up with rivals like OpenAI and Google. However, conflicts about the schedule and worries over the power supply caused the talks to break down.
Building its own AI data center in Memphis, Tennessee, xAI plans to buy NVIDIA processors directly from Supermicro and Dell. Musk's dedication to technological independence and vertical integration is demonstrated by this action, which gives it more control over its AI infrastructure.
Consequences to Oracle Incorporation
The failure of this agreement signals a lost chance for Oracle to acquire a significant client in the rapidly growing AI market. With xAI leaving, Oracle's cloud division—which has been rapidly enhancing its AI capabilities—will now need to go elsewhere to cover the gap. Nonetheless, Oracle and Microsoft (NASDAQ: MSFT) have an agreement in place for Oracle to supply NVIDIA-powered servers for OpenAI. With this agreement, which will involve 100,000 of NVIDIA's future GB200 processors, the new chip cluster in Abilene, Texas, is expected to be operational by Q2 2025 at an estimated cost of $5 billion distributed over two years.
Dell and Supermicro to Benefit
This shift from rent to own will be very beneficial to Supermicro, Dell, and Nvidia collectively. Supermicro, a renowned provider of high-performance computing solutions, and Dell, a prominent business technology player, are ideally positioned to fulfill the demanding hardware needs of xAI. Their market position and revenues in the AI hardware space may increase as a result of this agreement.
The company that supplies the highly sought-after H100 processors, NVIDIA, reports strong sales of its goods. Known for its exceptional performance in AI and machine learning applications, the H100 is still an essential part for businesses looking to develop sophisticated AI models.
Market Responses
Following the announcement, Oracle's stock fell 2.5% as a result of investor worries about the possible effects on its cloud business. In contrast, the market responded favorably to Supermicro's new involvement in xAI's ambitious objectives, causing both stock prices to slightly increase—by 2.1% and 3.8%, respectively. However, Oracle's stock seemed pretty sturdy in the following days and resilient to the recent tech sell-off on 11 July 2024.
xAI's prospects in the future
The shift made by xAI to handle hardware procurement directly is in line with Musk's ambitious goal of combining software and hardware to maximize effectiveness and performance. xAI can customize its infrastructure to meet its unique requirements by building its own data centers, which could lead to increased operational control and cost-effectiveness. This strategy might potentially speed up invention cycles, providing xAI a competitive advantage in the rapidly changing field of artificial intelligence.
A supercomputer with 100,000 NVIDIA GPUs is one of Elon Musk's ambitious plans to train the most recent iteration of xAI's conversational AI, Grok 3.0. Although xAI already leases over 16,000 NVIDIA chips from Oracle, this agreement will stay in place as the business moves to its new facilities.
Conclusion
Elon Musk's choice to buy NVIDIA processors from Supermicro and Dell instead of continuing with the $10 billion cloud server contract with Oracle represents a risky but promising strategic change for xAI. Supermicro and Dell stand to gain new chances, while Oracle embraces for the future of cloud provisioning. This action demonstrates how the AI sector is dynamic, with businesses always adapting to maximize their technological and strategic standing.
About xAI:
Founded by Elon Musk in 2023, xAI aims to advance artificial intelligence through innovative research and development. The company is dedicated to creating AI systems that align with human values and contribute positively to society.
Disclaimer: This article is based on currently available information and may be subject to change as new details emerge.