xAI's Major Anthropic Partnership Draws Skepticism

Anthropic and xAI announced a significant partnership this week, with Anthropic acquiring all the computing capacity at xAI's Colossus 1 data center in Tennessee.

On the latest episode of TechCrunch's Equity podcast, Kirsten Korosec, Sean O'Kane, and I explored the potential implications of this deal for xAI's parent company, SpaceX, as SpaceX prepares for its public offering and reportedly plans to dissolve xAI as a separate entity.

Kirsten offered a constructive perspective on the partnership—after all, it represents a new revenue stream for xAI. However, she also pointed out that this move suggests xAI may not be heavily focused on developing its own cutting-edge AI models, which could make it more challenging for the company to present itself as a forward-thinking innovator.

Sean then posed the question: "Why be optimistic when you can be skeptical?" In his view, this deal appears to be "a major reality check ahead of the IPO." While becoming a cloud infrastructure provider might be "a more credible business model in the short term," it is less likely to generate long-term excitement among external investors. (This is further complicated by an ongoing environmental lawsuit related to Colossus 1.)

Continue reading for an edited preview of our discussion.

Sean O'Kane: I always appreciate a surprise, especially when everyone's attention is elsewhere—like on a major ongoing trial. Seemingly out of the blue this week, SpaceX, and consequently its AI subsidiary xAI—which is now reportedly being dissolved—struck a deal with Anthropic.

Essentially, the core of the deal is that Anthropic is taking over all the computing resources at the Colossus 1 data center in Memphis, Tennessee, to support its enterprise-focused AI products. There has been considerable reporting on how Anthropic has been seeking additional computing power, and this agreement seems to provide a solution, granting them access to significant resources.

In the near term, for xAI and SpaceX, this effectively transforms them into a cloud service provider. They needed to find a use for the substantial computing infrastructure they had built, as it seems their own AI, Grok, isn't consuming those resources at a scale that would justify the investment, especially outside of the X platform.

Kirsten Korosec: For those unfamiliar, a "neocloud" refers to companies that purchase GPUs from suppliers like Nvidia and rent out that computing capacity, rather than using it exclusively for their own AI model training. This represents a different business approach. As our AI editor, Russell Brandom, notes, many companies are constructing data centers, but if given the choice, they prioritize using that computing power for their own internal AI development. This highlights that xAI may not be heavily engaged in advanced AI model training.

Anthony Ha: Exactly. As Sean hinted, most people wouldn't consider Grok a top-tier AI—not only due to its association with controversial content but also because it isn't seen as particularly advanced. This is especially relevant in the context of enterprise AI, which we'll discuss later. You don't hear about professionals relying on Grok for critical work tasks.

So the central question is: How can xAI actually generate revenue? Selling or leasing its infrastructure appears to be a primary strategy.

Kirsten: One could view this positively, right? They've found a way to monetize their assets. However, if a company like SpaceX/xAI aims to position itself as a visionary and innovative leader, it becomes harder to maintain that image if its main activity is renting out computing hardware rather than using it for groundbreaking research.

Sean: But why be positive when you can be cynical? This deal feels like a major strategic pivot ahead of SpaceX's impending IPO. Anthony, you mentioned that Grok isn't used for major enterprise applications. There have also been reports that xAI employees weren't even using Grok internally, leading to significant internal turmoil after the SpaceX acquisition, including the departure of all co-founders except Elon Musk. He has stated he's essentially restarting xAI from scratch, despite SpaceX's massive investment, and now plans to dissolve xAI as a separate entity, rebranding it under SpaceXAI—another example of rebranding an established name, much like with Twitter.

This cloud infrastructure business might be more believable in the short term and could appear more stable to potential investors during the IPO. However, it's not the type of high-growth, frontier technology business that typically attracts the level of external investment seen by leading AI research labs. This tension is becoming a key point of discussion as the IPO approaches.

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