GoKawiilAn unexpected development over the past few weeks is xAI's new partnerships with Anthropic and Google, providing them with a huge amount of capacity. It's worth remembering that xAI is now part of SpaceX, after the two merged back in February - so the revenue from these deals flows straight into the entity about to go public. While much has been made of the potential financial engineering given SpaceX's upcoming IPO, I think there's a bit more to this than just pure accounting tricks.
Anthropic was in a serious bind
If you use Claude products much, you'll be (very, probably) aware that Anthropic has had serious capacity problems, especially early afternoon onwards in Europe and in the mornings in the US (this is when demand seems to be highest as both European users and the Americas are both at work, fighting for capacity). I've written about this compute crunch before a few times - the coming crunch, whether it's here yet, and what comes next.
This resulted in Anthropic having to introduce new peak hour restrictions on their subscriptions, with usage between 5am–11am PT / 1pm–7pm GMT using more of your usage limit - with the aim of smoothing demand between peak hours and off peak hours where they had more capacity available.
However, there is only so much demand shifting you can do when demand is growing as fast as Anthropic's. At some point you end up having to ration users further, which definitely is far from ideal when you have both Google and OpenAI breathing down your neck for customers.
xAI to the rescue?
At the start of May, xAI announced a partnership with Anthropic to provide access to their (older) Colossus 1 datacentre in Memphis. This allowed Anthropic to reverse the usage limit restrictions on their subscriptions, and in general while stability of Anthropic services still leaves a lot to be desired, the peak time crunch has abated (for now, at least).
The fees involved are enormous, ramping to $1.25bn/month for 300MW of capacity - approximately 220k GPUs.
Last week, Google announced a similar partnership - $920mn/month for 110k GPUs . It's important to note that both agreements have cancellation clauses - allowing either party to cancel with 90 days' notice after an initial lock-in period.
If you take this on face value, this is a ludicrously profitable deal for xAI:
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