xAI’s Deal with Anthropic Looks More Like an IPO Survival Move Than an AI Breakthrough
Elon Musk’s AI company xAI has struck a significant partnership with Anthropic, handing over all compute capacity at its Colossus 1 data center in Memphis, Tennessee, so Anthropic can power its enterprise AI products. The xAI Anthropic deal was announced by Anthropic this week, and while it gives both companies something on paper, the optics have raised serious questions about where xAI actually stands in the AI race.
On the surface, it looks like a win. Anthropic has been aggressively seeking more compute, and the Colossus 1 facility gives them an outlet. For xAI and its parent company SpaceX, it means revenue from infrastructure that was sitting underutilised. But that is precisely what is making observers uncomfortable.
The arrangement effectively turns xAI into what the industry calls a neocloud, a company that buys up Nvidia GPUs and rents them out rather than using them to train its own AI models. That is a more modest business than anyone imagined when xAI was pitched as a frontier AI lab to rival OpenAI and Google DeepMind. The timing is hard to ignore too. SpaceX is gearing up for what could be one of the biggest IPOs in recent memory, and reports suggest xAI will be dissolved as a separate entity and folded entirely into SpaceX, with Musk already referring to the combined outfit as SpaceXAI.
Critics point out that Grok, xAI’s flagship AI product, has not exactly set the market on fire outside of X, formerly Twitter. There have even been reports that xAI employees were using rival models internally rather than their own, a revelation that reportedly triggered a major internal shake-up and saw nearly all of xAI’s co-founders depart. Grok has also drawn controversy, facing calls for a federal ban over nonconsensual sexual content generated on the platform. And that is before factoring in the environmental lawsuit xAI is facing over allegedly running over 400MW of gas turbines at Colossus 1 without the proper permits.
The xAI Anthropic deal may be the most honest signal yet about which direction Musk’s AI ambitions are actually heading. Renting out data center space is a real business, but it is a very different story from building the next generation of AI. Whether that story is compelling enough for IPO investors remains the big question hanging over SpaceX right now.
The Elon Musk vs. OpenAI legal battle is also ongoing in the background, adding yet another layer of distraction for an empire that seems to be quietly pivoting from AI innovation to AI infrastructure.
