- Anthropic is essentially taking over all compute at xAI’s Colossus 1 data center in Memphis for enterprise AI products
- TechCrunch analysts say the deal signals xAI has given up on training frontier models and is pivoting to infrastructure sales
- xAI employees were reportedly using rival models instead of Grok, and most co-founders besides Elon Musk have left
When Anthropic and xAI announced their partnership last week, the headlines focused on collaboration. The reality, according to TechCrunch’s Equity podcast team, is far more cynical: Anthropic is essentially taking over all the compute at the data center known as Colossus 1 in Memphis, Tennessee, to focus on Anthropic’s enterprise AI products—and xAI is pivoting from frontier lab to neocloud.
“The real version of the deal is that Anthropic’s essentially taking over all of the compute at the data center,” TechCrunch’s Sean O’Kane said. “There’s been a lot of reporting about how [Anthropic’s] been looking for more compute … and it seems like an escape valve for them.”
Grok fails as consumer chatbot
The pivot tells its own story. xAI had to do something with all the compute it was building, because Grok—outside of X—“is not burning up the world as far as becoming the new hot consumer chatbot,” O’Kane noted. Reports emerged that xAI employees were themselves using rival models instead of Grok for their own work, a damning signal for a company that pitched itself as a frontier AI lab.
Meanwhile, xAI apparently plans to dissolve as a standalone entity, with all co-founders leaving other than Elon Musk. The company faces an environmental lawsuit over its Memphis operations, and questions about its AI infrastructure sustainability continue to mount.
Infrastructure sales as IPO strategy
TechCrunch’s team called the deal “a major heat check before the IPO.” Selling infrastructure could be more believable to investors than claiming xAI remains a frontier lab. “This may be a more believable business in the near term,” O’Kane said, but warned it won’t “draw the same outside investment that we’re seeing go into all the frontier labs.”
That tension—between reliable infrastructure revenue and the sky-high valuations commanded by model builders—may be the defining fault line of xAI’s IPO.
As xAI transitions from AI developer to compute provider, the deal raises a broader question about the neocloud market: if companies like xAI can’t compete on model quality, can they compete on infrastructure? The answer will shape how investors value the next generation of AI companies—and whether “neocloud” becomes a viable business category or just a consolation prize for labs that couldn’t keep up.
FAQ
What is xAI’s Colossus 1?
Colossus 1 is xAI’s massive data center in Memphis, Tennessee, built to train AI models. Under the Anthropic deal, Anthropic is taking over the facility’s compute capacity for its own enterprise AI products.
Why is xAI pivoting to neocloud?
Grok has failed to gain traction as a consumer chatbot outside of X, xAI employees were reportedly using rival models, and most co-founders have left. Selling compute infrastructure may be more viable than competing as a frontier AI lab.
What does this mean for xAI’s IPO?
Infrastructure sales provide more reliable near-term revenue, but neocloud businesses don’t command the same sky-high valuations as frontier AI labs. The tension between these two positioning strategies is a key risk for the IPO.
