MEMPHIS / LONDON (IT BOLTWISE) – Elon Musk’s AI startup xAI plans to build a new data center in Memphis that uses NVIDIA chips. A leasing contract worth billions will form the basis for the technological infrastructure. This strategic decision sets xAI apart from competitors that rely on cloud partnerships.
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Elon Musk’s AI startup xAI has ambitious plans to build a new data center in Memphis known as Colossus 2. At the center of this development is a planned leasing agreement for NVIDIA chips worth $20 billion. These chips are intended to form the technological basis for the center’s computing power. Unlike many competitors that rely on cloud partnerships, xAI pursues the strategy of owning the majority of its data centers itself.
The financing of these plans will be supported by Valor Equity Partners, a long-time supporter of Elon Musk. Valor plans to create a special purpose vehicle with $7.5 billion in equity and $12.5 billion in debt. This company would purchase the NVIDIA chips and lease them to xAI, with an option to purchase them after the lease expires. This structure shifts much of the financial risk to Valor Equity Partners.
The decision to rely on NVIDIA chips is strategically important as NVIDIA is considered a leader in AI hardware. NVIDIA’s H100 GPUs are known for their ability to efficiently process large amounts of data, making them ideal for the needs of xAI. This technology enables xAI to power complex AI models required to develop advanced AI applications.
While xAI takes a different path with this strategy than competitors like OpenAI and Anthropic, it remains to be seen how this decision will impact the market. Experts see xAI’s independence as an advantage because it gives the company more control over its infrastructure. This could lead to cost savings and better adaptability to technological developments in the long term.
Elon Musk has denied reports of a funding round in xAI that reportedly raised $10 billion. Nevertheless, raising capital remains a key issue for the company, which aims to make further investments in the coming months. The development of Colossus 2 could be a crucial step for xAI to assert itself in the highly competitive AI market.
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