Oracle shares dropped nearly 5% following Elon Musk’s announcement that his AI startup, xAI, would reduce its reliance on Oracle’s cloud technology. Musk stated the decision was made to maintain a competitive edge in speed over other AI companies. This news comes after talks of a $10 billion cloud deal between the two companies fell through. Oracle had previously reached a deal to provide cloud infrastructure to xAI for training AI models using Nvidia H100 chips, but Musk’s recent post confirmed that xAI would be building its AI training infrastructure in-house, impacting Oracle’s potential revenue stream.
This move by Musk highlights the challenges faced by cloud providers in scaling their services despite having access to capital. Analyst Anurag Rana of Bloomberg Intelligence believes that these challenges extend beyond Oracle and could also affect other major cloud providers like Microsoft and AWS. The shortage of specialized chips and power could be key factors in these challenges.
In previous reports, it was revealed that Musk’s startup had spent around $10 billion on renting servers in Oracle’s cloud over the years, indicating a significant partnership between the two companies. Talks were reportedly in progress to expand this relationship, but ultimately ended, leading to Oracle’s shares falling to an intraday low of $138. Despite this drop, Oracle’s shares closed at $145.03 on Monday, showing a year-to-date increase of 38%.
Overall, Musk’s decision to shift AI training infrastructure in-house has repercussions for Oracle’s cloud business and highlights the evolving dynamics in the AI and cloud computing industry. This development serves as a reminder of the competitive nature of the market and the importance of innovation in staying ahead in the rapidly changing landscape of technology.
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