Oracle Stock Falls as Musk’s xAI Backs Out of Cloud Deal

Oracle stock drops 4.8% after Elon Musk’s xAI backs out of a $10 billion cloud deal.

The price of Oracle shares dropped as much as 4.8% after Elon Musk said that his AI start-up would depend less on cloud technology from the software company. This could mean less money for Oracle.

This Tuesday, Musk wrote on his social network X that his company, xAI, had decided to build a system to train AI models internally because “our fundamental competitiveness depends on being faster than any other AI company.”Initial reports from The Information said that the two companies had ended talks on a possible US$10 billion cloud deal.

In last year, Larry Ellison, Chairman of Oracle, said that the company had decided to provide cloud technology to help Musk’s xAI train its models.Ellison didn’t say how much the deal was worth or how long it would last at that time. Musk wrote in his blog post that xAI’s Grok 2 model was trained on 24,000 Nvidia H100 chips from Oracle and will likely be available next month.

Anurag Rana, an analyst at Bloomberg Intelligence, wrote that Musk’s choice to build his own AI-training infrastructure shows how hard it is for cloud providers to grow, even though money is available. These problems don’t just affect Oracle; they could also affect Microsoft and AWS, not just because of a lack of power and specialised chips.

The Information said in May that Oracle and xAI were almost done with a deal to grow their partnership. The Information reported at the time that a person involved in the talks said Musk’s new company would have had to pay about US$10 billion to rent cloud computers from Oracle for a few years. The news source said before Musk’s posts that the talks were over. After the news, Oracle’s stock fell as low as US$138 during the day. Monday, the stock finished at US$145.03. It has gone up 38% this year.