xAI partners with Anthropic to lease compute capacity

On Wednesday, xAI and Anthropic announced a partnership for Anthropic to buy compute capacity at Colossus 1, an xAI data center. Under the terms of the agreement, Anthropic will purchase roughly 300MW of compute capacity at the facility. The deal, which is likely worth billions of dollars, represents a transaction between the two artificial intelligence companies.

According to Elon Musk, xAI has already moved its own training operations to a newer data center, Colossus 2. This transition allows xAI to monetize its Colossus 1 infrastructure, signaling a potential shift toward a “neocloud” business model. A neocloud is a business model where a company buys graphics processing units (GPUs) from suppliers like Nvidia and rents them out to other model developers. This shift allows xAI to generate revenue from its data center buildout beyond what is needed for Grok, its AI product.

This provider-focused strategy contrasts with competitors like Google and Meta, which prioritize keeping compute capacity for their own AI development. For instance, during a Meta Compute announcement in January, Meta CEO Mark Zuckerberg emphasized the strategic value of infrastructure, stating, “How we engineer, invest, and partner to build this infrastructure will become a strategic advantage.” While Google and Meta choose to retain capacity to build their own tools, xAI is positioning itself as a compute provider. This pivot stands out for a company valued at $230 billion in its January funding round. By comparison, CoreWeave, a competitor operating as a neocloud provider, is worth less than a third of xAI’s valuation. The partnership also stands out given xAI’s ongoing lawsuit with competitor OpenAI.

Looking ahead, xAI’s ambitions include potential space-based data centers, which could launch at least by 2035 in partnership with SpaceX, which is an owner and partner of xAI. However, the neocloud strategy remains a difficult business model to sustain, as providers are squeezed by chip suppliers like Nvidia and shifting market demand. The shift in focus was teased as early as xAI’s February all-hands meeting, highlighting the company’s evolving infrastructure priorities.

Why it matters

The partnership monetizes xAI’s compute capacity, turning the company from a consumer to a provider of compute. It signals a potential shift in business strategy toward becoming a neocloud provider, renting infrastructure to competitors rather than solely focusing on its own software development.