Oracle shares dropped as much as 4.8 per cent after Elon Musk said his artificial intelligence start-up would rely less on cloud technology from the software maker, jeopardising a potentially lucrative revenue stream.
In a post Tuesday on his social network X, Musk said his company, xAI, decided to build a system to train AI models internally because “our fundamental competitiveness depends on being faster than any other AI company”. The Information reported earlier that the companies had ended talks on a potential US$10 billion cloud agreement.
Oracle Chairman Larry Ellison said last September that Oracle had a deal to provide cloud infrastructure to Musk’s xAI to train models. Ellison did not release the value or the duration of the contract at that time. In Musk’s post, he said that xAI’s Grok 2 model was trained on 24,000 Nvidia H100 chips from Oracle and is “probably ready to release next month”.
Musk’s decision to build AI-training infrastructure internally underscores the expansion challenges for cloud providers despite the availability of capital, wrote Anurag Rana, an analyst at Bloomberg Intelligence. “We believe these issues extend beyond Oracle and could also vex Microsoft and AWS, not just because of a shortage in specialised chips, but also power.”
In May, the Information reported that Oracle and xAI were close to a deal to expand their relationship. Musk’s start-up would have spent about US$10 billion to rent cloud servers from Oracle for a period of years, the Information reported then, citing a person involved in the talks. Those talks have now ended, the publication reported before Musk’s posts.
Oracle’s shares hit an intraday low of US$138 after the report. The stock closed at US$145.03 Monday, gaining 38 per cent this year.
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