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 megawatts. The deal, likely worth billions of dollars, allowed Anthropic to immediately raise its usage limits. More importantly, it immediately monetized one of xAI’s most impressive accomplishments, turning the company from a consumer of compute into a provider.
A shift in strategy
It’s tempting to see the arrangement as a shot at OpenAI amid the ongoing lawsuit. But Elon Musk explained on X that xAI had already moved training to a newer data center, Colossus 2, and simply didn’t need both facilities. In the short term, there’s an obvious logic at work. 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 is that much more than what Grok needs to operate, partnering with Anthropic adds a lot of green to the balance sheet — especially useful as the company, now combined with SpaceX, speeds toward an IPO.
Also read: Altman testifies Musk once proposed handing OpenAI to his children during safety dispute
More broadly, having Anthropic lined up as a customer makes it easier to believe that SpaceX’s orbital data center play might actually work. But beyond the short-term benefit, the Anthropic partnership sends an unusual message about where Musk’s priorities really lie. It suggests the company’s real business may be more about building data centers than training AI models.
Rare among tech giants
It’s rare to see a major tech company treat compute resources this way. Companies like Google and Meta, which are also training models, are building more data centers — but they keep their capacity for themselves. Just last month, Sundar Pichai admitted on a call that Google Cloud revenue was lower than it could have been because the company was capacity constrained. When given the choice of renting out GPUs or using them to develop AI products, Google chose the AI products.
Also read: Google and SpaceX in talks to launch orbital data centers, WSJ reports
Facebook has faced a more extreme version of the same constraint, spinning up an entirely new cloud apparatus just to ensure enough GPU power to chase Zuckerberg’s AI ambition. As he put it when announcing Meta Compute in January: “How we engineer, invest, and partner to build this infrastructure will become a strategic advantage.”
Neocloud positioning
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. It’s a far more difficult business, squeezed by both chip suppliers and shifting cycles of demand. The valuations for most active neoclouds reflect that reality: 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, as you might expect. Some of the data centers might be in space — at least by 2035, if things go according to plan. xAI will be making its own chips at the Terafab, which will take away some but not all of Nvidia’s pricing power. But none of it changes the basic economics of the neocloud business.
As recently as the February all-hands, xAI had real ambitions in software. That presentation unveiled the orbital data center project, but also teased significant ambitions in coding (since bolstered by the Cursor partnership) and interesting ideas like tapping into computer use into full-scale digital twins. These are the kind of long-horizon projects that need committed computing resources to succeed. As long as xAI is selling large quantities of compute to its competitors, it’s hard to think such new ambitions have much of a future.
Conclusion
The Anthropic deal monetizes xAI’s infrastructure advantage in the short term, but it also raises fundamental questions about the company’s long-term identity. By prioritizing data center sales over internal AI development, xAI is charting a path that diverges sharply from its peers. Whether that makes it a neocloud — or something else entirely — will depend on whether Musk can balance the immediate revenue with the strategic investments needed to build the next generation of AI products.
FAQs
Q1: What exactly did xAI sell to Anthropic?
Anthropic bought all of the compute capacity at xAI’s Colossus 1 data center, roughly 300 megawatts of computing power. The deal is likely worth billions of dollars and allows Anthropic to immediately raise its usage limits for its Claude AI models.
Q2: Why is this deal significant for xAI’s strategy?
It marks a shift from xAI being a consumer of compute (training its own models like Grok) to a provider of compute to other AI companies. This positions xAI more like a neocloud business — renting out GPU capacity — rather than a pure AI product company.
Q3: How does this compare to what Google and Meta do with their data centers?
Google and Meta both prioritize using their own compute capacity for internal AI development over renting it out. Google’s CEO recently admitted the company was capacity constrained and chose to use GPUs for its own AI products rather than selling them through Google Cloud. Meta built an entirely new cloud infrastructure just to ensure enough capacity for its own AI ambitions.
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