xAI is looking more like a datacentre REIT than a frontier lab

xAI's latest deals are quietly turning it into something other than a frontier AI lab. In recent weeks it has signed partnerships with Anthropic and Google that hand both rivals enormous amounts of computing capacity, with the revenue flowing into an entity preparing to go public.

xAI is now part of SpaceX after the two merged in February, and the upcoming IPO is expected to be the largest in North American history. Much attention has gone to the financial engineering implied by the timing, but the capacity shortage behind the deals is just as real.

Anthropic was in a serious bind

Anthropic has struggled with capacity for months, especially from early afternoon in Europe through the morning in the United States. It introduced peak-hour restrictions on subscriptions, so usage between 5am and 11am Pacific time consumes more of a subscriber's limit. Demand shifting only goes so far when growth is that fast.

At the start of May, xAI announced a partnership giving Anthropic access to the older Colossus 1 datacentre in Memphis. Anthropic was then able to reverse its usage limits, and the peak-time crunch has eased, at least for now.

The numbers

The fees are enormous: they ramp to $1.25bn per month for 300MW of capacity, roughly 220,000 GPUs. Last week Google announced a similar arrangement at $920mn per month for 110,000 GPUs. Both agreements allow either side to walk away with 90 days' notice after an initial lock-in.

Lease revenue from the two customers crosses the roughly $40bn build cost at around 18 months, before operating costs and depreciation. If the contracts run that long, xAI recovers its capital expenditure and still holds hundreds of megawatts of GPUs. Power is close to a rounding error: 300MW running flat out in Tennessee costs about $160mn a year from the grid, and less on the site's own gas turbines.

Red flags, and what xAI still has

Musk and OpenAI remain locked in a bitter legal battle, and the Anthropic deal could be aimed at pressuring OpenAI as much as at commercial logic. Google is also a major SpaceX shareholder, giving it an incentive to support the valuation before the IPO. Yet GPUs really are in short supply, and most datacentre projects are far behind schedule: OpenAI's flagship Stargate UAE site is under threat from the Iran conflict, after Iranian drones hit other UAE datacentres this year.

xAI built the original Colossus 1 in 122 days, an advantage hyperscalers planned with far less urgency will not close quickly. That leaves Grok in an odd position, with capacity destined for its training and inference leased to a direct competitor — a retreat from frontier-lab ambitions, or simply capacity over-specified relative to demand.

All three explanations — financial engineering, a genuine compute shortage and a real construction advantage — are probably true to some degree, and how true each one is will shape the biggest IPO in North American history. Either way, xAI increasingly resembles a datacentre landlord with a frontier lab attached, rather than the other way around.