Shares of Oracle (NYSE:ORCL) dropped on Tuesday following a report from The Information detailing failed attempts to extend a deal with Elon Musk’s xAI startup. The two companies were in discussions to expand a current arrangement where Oracle leases specialized Nvidia (NVDA) artificial intelligence chips to the startup. The proposed deal was worth as much as $10 billion and would have been used to construct a supercomputer.
However, according to the report, the talks fell through, and xAI has decided to purchase chips to build its own data center. The AI data center is set to be located in Memphis, Tennessee, and will utilize Nvidia chips currently sourced from Dell (DELL) and Super Micro (CISM). Elon Musk himself confirmed this decision, stating that xAI has hired 24,000 H100s from Oracle and Grok 2 trained on them. They are now building a 100k H100 system to finish as quickly as possible.
Musk praised Oracle as a great company but emphasized the need for xAI to have full control over its technology. He mentioned that while another company in the OpenAI GB200 cluster has potential, xAI’s success depends on being the fastest in the field. Therefore, building their own data center with Nvidia chips is seen as a strategic move to ensure autonomy and efficiency.
In response to these developments, Oracle’s stock price took a hit as investors reacted to the news of the failed deal. The shift in xAI’s strategy highlights the competitive nature of the artificial intelligence industry and the importance of technological independence for companies like xAI. The decision to build their own data center reflects xAI’s commitment to innovation and staying ahead in the rapidly evolving AI landscape.
Overall, the failed deal between Oracle and xAI marks a significant development in the AI sector and demonstrates the complexities of partnerships in the technology industry. While Oracle is a formidable player in the field, xAI’s decision to go its own way showcases the fierce competition and the drive for technological advancement among companies in the AI space. The fallout from this failed deal serves as a reminder of the fast-paced nature of the tech industry and the need for companies to constantly adapt and innovate to stay ahead of the curve.
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