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May 6, 2026 • Russell Brandom

Is xAI a neocloud now?

Is xAI a neocloud now? Is xAI a neocloud now? Is xAI a neocloud now?

Is xAI a neocloud now?

The Strategic Shift

xAI and Anthropic announced a surprise partnership where Anthropic is buying out "all of the compute capacity at xAI's Colossus 1 data center" — roughly 300MW. This deal immediately monetized one of xAI's most impressive accomplishments, transforming the company from a consumer to a provider of compute.

Key Business Implications

The Economics:

  • Elon Musk explained that xAI had moved training to Colossus 2 and didn't need both data centers
  • Grok has seen plummeting usage since early 2026 image generation controversies
  • Partnership with Anthropic adds significant revenue to the balance sheet
  • Makes SpaceX's orbital data center play more credible

The Strategic Divergence:

Unlike Google and Meta, who prioritize preserving compute for their own AI development:

  • Google Cloud deliberately limited revenue to maintain capacity for AI products
  • Meta created an entirely new cloud infrastructure (Meta Compute) to chase AI ambitions
  • Both treat compute as a "strategic advantage" for building future products

xAI is taking the opposite approach — positioning itself more as a neocloud business: buying GPUs from Nvidia and renting them to model developers.

Valuation Reality Check

  • xAI valuation (January 2026): $230 billion
  • CoreWeave valuation: Less than a third of xAI, despite comparable computing power

The neocloud business model is squeezed between chip suppliers and shifting demand cycles, reflected in significantly lower valuations.

What This Means for xAI's Software Ambitions

In February's all-hands meeting, xAI revealed ambitious software projects:

  • Orbital data center project
  • Significant coding ambitions (bolstered by Cursor partnership)
  • Computer use leveraged into digital twins ("Macrohard" project)

The Problem: These long-horizon projects require committed computing resources. By selling large quantities of compute to competitors like Anthropic, xAI may be undermining its own software development future.

The Bottom Line

xAI appears to be prioritizing infrastructure business over AI product development — a fundamental strategic choice that differentiates it from other major AI companies. Whether this positions them for success or limits their ability to compete in the AI products space remains to be seen.