Elon Musk somehow manages to win again. Microsoft, along with BlackRock and UAE-based MGX, have announced they are partnering with his artificial intelligence startup xAI on a $30 billion project to develop data centers and other infrastructure.
Microsoft, being the largest backer of OpenAI, is essentially teaming up with one of its rivals. That relationship has increasingly cooled as Microsoft loosens its reliance on the startup and develops its own in-house AI models including MAI. OpenAI CEO Sam Altman is no fan of Musk, recently describing him as insecure in an interview, and must be screaming inside. Altman probably is not wrong about Musk’s insecurity, but insecurity is a powerful motivator.
Gizmodo has reached out to xAI for comment. Musk’s companies do not often respond to media inquiries.
The details of the new deal with xAI are unclear, like how much money Musk’s startup will commit to the data center venture. xAI has raised $12 billion since its founding in 2023, nearly the same amount as OpenAI, and is reportedly looking to raise another $10 billion. Its data center in Memphis, dubbed Colossus, is said to be the largest in the world with more than one million GPUs powering the Grok chatbot that is deeply integrated into X.
xAI has received criticism for using gas turbines to feed its significant power demands, and receiving significant concessions from the city of Memphis even though data centers usually do not employ many people, and AI threatens to eliminate jobs. Most companies in the space hope to build out nuclear energy to power their demands, which could be a positive for the green energy transition, but building out nuclear takes many years. In the meantime, President Trump has advocated for building out coal power plants next to data centers.
Every company in the artificial intelligence space is racing to build out computing infrastructure they believe will be necessary to stand out in an incredibly competitive field. Forming partnerships could help spread the costs of these expansive projects, and Bloomberg reports that other investors might join the Microsoft-xAI project:
The Microsoft-backed group will be renamed the AI Infrastructure Partnership, or AIP, and focus on infrastructure investments — including energy projects — mostly in the US, with a portion of the funds to be deployed in partner countries, according to the companies. The plan foresees bringing on additional investors. Clients, including pensions and insurers, are eager for such long-term infrastructure projects, BlackRock Chief Executive Officer Larry Fink said in the statement.
OpenAI early this year announced its own $100 billion infrastructure project with Oracle and SoftBank, one of the earlier signs that it was distancing itself from Microsoft. The big tech company has been building out its own in-house models that could be faster and less expensive to run than ChatGPT, and Microsoft likely does not want to be reliant on an independent company for its AI models if the technology is going to be as revolutionary as many in the industry believe. It is better to control your own destiny than rely on a wild and frenetic company like OpenAI, which has seen a slew of scandals and ongoing drama, including the brief ouster of Altman.
The whole thing must be very satisfying to Musk, who clearly launched xAI out of jealousy of OpenAI’s sudden and massive rise. He co-founded the startup, after all, but left following disputes surrounding its direction, only to see the company launch ChatGPT and kickstart a new AI generation. Now he is teaming up with OpenAI’s largest backer on his own rival startup. Musk also continues to try and sue OpenAI over its transition to a for-profit company, among other issues. It is viewed as a convenient way to try and slow OpenAI’s growth as he builds a competitor.
Musk’s close relationship with the Trump administration has aided him significantly, even if it has hurt one leg of his empire, Tesla. The Financial Times reported on Tuesday that X is now privately valued at $44 billion, the exact same price he paid for what was then called Twitter back in 2022. Once a bastion of coastal elites, X has become something more of a Republican media outlet and microphone to promote President Trump’s agenda. xAI similarly has had no problems raising funding from sovereign wealth funds and others who want to be close to power. OpenAI’s ChatGPT remains far and away the most popular AI chatbot in use today with a reported 400 million weekly users and name recognition that none of its competitors enjoy.
xAI is banking on its access to real-time posts from X to differentiate Grok as a powerful chatbot, even though the social network is littered with misinformation. Grok is deeply integrated with X, with buttons allowing users to ask for more context about specific posts. But the general idea seems to be that cozying up to Trump and making X the town square of the Republican party will support xAI’s rise as a major AI player. The chatbot, like all the others, suffers from serious issues producing accurate responses.
Last year, Musk gave shares in xAI to investors in his Twitter takeover, as well as preferential access to xAI’s funding rounds, effectively ensuring they would make their money back. The new deal with Microsoft cements xAI as a legitimate player in the AI race. While it remains a major question how impactful AI chatbots will really become in the world, it is understood that should they be as successful as hoped, having access to significant compute will help the few survive. Anyone can run a model like DeepSeek, but “agents” that control computers and do work for users will be resource-intensive, and users will go to competitors if their usage is rate-limited by another.
