Artificial Confidence: xAI, the Neocloud
xAI raised frontier-lab money, then used it to quietly turn into a GPU landlord, renting its Memphis data center to the two competitors out-shipping it. Apple conceded it can’t host its own AI either.
There’s an indicator that shows up in an S-1 when a company’s stopped doing the thing it raised money to do, and SpaceX’s prospectus has it. xAI raised the kind of capital you raise to win the AI model race and be the Bestest Boy, but then spent the last week disclosing that its actual business is instead renting GPUs to the companies who’re winning the model race. Meanwhile, Apple conceded it cannot run its own assistant on its own servers and is paying Google a billion dollars a year to borrow one. And Anthropic, which rents xAI’s spare compute to keep Claude running, filed to go public on revenue it won’t show you yet, then watched Claude fall over twice in four days.
So somehow we’ve arrived here, a place where everyone in AI is now renting the one part of the stack they spent three years insisting they had to own themselves.
What Actually Changed (Adjusted For Spin)
Google agreed to pay SpaceX $920 million a month for compute
In a June 5 filing, Google committed to roughly $920 million (what’s a few million here or there between friends?) a month through June 2029 to rent capacity from SpaceX. The world’s largest owner of AI compute cannot build data centers fast enough to keep up with itself, so it is renting them from a rocket company. Totally normal. Very sane. This is all fine.
Apple shipped the betas that let you replace Siri
iOS 27, iPadOS 27, and macOS 27 developer betas landed yesterday with the new Extensions framework: you can now designate Claude, ChatGPT, or Gemini as the default provider for Apple Intelligence features. Apple also deprecated SiriKit in favor of App Intents, the only framework that will talk to the rebuilt assistant because Apple is Very Special. GA in the fall. A real API and availability change, not a keynote promise—but can we really trust Apple’s keynotes after their Apple Intelligence oversteps?
Claude went down. Twice.
June 2 and June 5. Oops. #hugops to them.
xAI Is A Neocloud Now (They Just Can’t Say So)
xAI built Colossus 1, the Memphis data center fueled by gas turbines and bad faith, to train Grok. Then, per SpaceX’s S-1, it decided the smarter move was to rent the whole thing to Anthropic for $1.25 billion a month through 2029, and last week added Google at another $920 million. Combined, that’s about $26 billion a year from compute it bought to do something else. Anthropic raised Claude’s usage limits the day that deal was announced, the clearest sign the constraint was always the compute, never the demand.
That’s the part the prospectus dances around with the same care you’d bring to defusing a landmine. SpaceX calls this a “dual monetization strategy” and says it “allows us to monetize unused compute capacity,” which is the corporate-finance way of describing the spare bedroom you rent out as a “diversified hospitality vertical.” It’s unused because Grok didn’t need it, presumably because most businesses have minimal use cases in the workplace for “revenge porn.” xAI moved its real training to Colossus 2. So model lab is now a landlord, the tenants are the companies beating it, and this timeline remains profoundly stupid.
The counterfactual everyone politely skips is “why not point all that compute at making Grok better.” The answer’s in the public record: the last time Grok made headlines for its capabilities, it was enthusiastically introducing itself as MechaHitler. Thirty billion dollars of GPUs is not, right now, the obvious value-maximizing play, so the GPUs are for rent and the S-1 found a much nicer word for it.
This matters because of what trades Friday: SPCX opens June 12 at a fixed $135, around a $1.75 trillion valuation, roughly 95 times last year’s revenue and the largest IPO ever attempted. A chunk of what’s being sold as frontier-AI upside is, upon inspection, a leasing business. Because nobody can build anything in this industry without sleeping with everybody else, Google (newly signed as a Colossus tenant) was an early SpaceX investor, holds a stake, and has a director on the board. So one of the two customers anchoring xAI’s revenue narrative also profits when that narrative prices the IPO higher. What an economist calls vertical integration, and what everyone else calls a massive conflict of interest.
Everyone Else Is Renting Too
If xAI is the supply side of the great AI sublet, Apple spent yesterday as the demand side. Tim Cook’s last keynote as CEO unveiled a rebuilt Siri that runs on a custom 1.2-trillion-parameter Google Gemini model, for which Apple is reportedly paying around a billion dollars a year (which is, to Apple, chump change). The company that designs its own silicon and built a retail religion on owning the whole stack apparently could not, as it turns out, build the one part that now matters to everyone.
It gets better. Apple originally tried to host the model on Private Cloud Compute and found, per The Information, that a trillion-parameter model ran too slowly at Siri’s scale. So the heaviest queries route to Nvidia B200s, and the contract leans on Nvidia’s on-chip encryption to keep Google from reading them. The “we own the whole stack” company is now shipping as their flagship announcement what is in effect a group project, which feels surreal.
So Claude and ChatGPT lost the “which AI lab does Apple partner with” bake-off, but the consolation prize is arguably better. Extensions let you set them as the default for the rest of Apple Intelligence.
And of course, none of this is free of history. Apple is shipping (in beta) the contextual Siri it promised at WWDC 2024 and didn’t deliver, a gap that cost it a $250 million settlement whose approval hearing lands ~nine days from now. If they got it right this time, then the features will finally arrive, as someone else’s model on rented hardware, two years and a class action later. Which, in the current AI industry, resembles a... passing grade?
Reliability: A Brief Retrospective
Anthropic filed its confidential S-1 on June 1. The next day, Claude went down. Three days later, it went down again, taking claude.ai, the API, Claude Code, and Cowork with it. Oops.
I have a professional interest in Claude staying online (because I am *NOT* going to write IAM policies myself like some kind of agrarian farmer), and watching the tool you use to do your job blink out twice in one week, while its parent is valued like “every power utility combined,” concentrates the mind on the gap between calling yourself a utility and behaving like one. You don’t wonder if water is going to come out of the tap when you turn it on, unless you’ve been vibe-plumbing again.
The customers who ran Claude through Vertex or Bedrock mostly rode it out, which is the lesson nobody selling you a trillion-dollar single point of failure wants underlined. It’s priced as critical infrastructure and yet it’s run, for now, like a startup having a week. If you’re putting it in production, architect for the Tuesday it isn’t there.
One last thing
Every deal this week is a bet that the tokens keep flowing through somebody else’s building. xAI rents out the data center it couldn’t train on, Apple rents the model it couldn’t build, Google rents capacity from a rocket company, and Anthropic rents all of the above, files to go public on the strength of it, and then trips and falls down the availability stairs. A trillion dollars of valuation are currently resting on the premise that inference is something you have to drive somewhere to buy.
A Stanford lab spent last November documenting that the laptop already in your bag handles something like nine of every ten everyday questions on its own, and got five times better at it in two years. Nobody’s neocloud is priced for the day the easy tokens stop making the trip.
So watch the intelligence-per-watt curve, not the IPO calendar. The tokens are already walking home.
See you next week.
— C
"Diversified hospitality vertical" for the spare bedroom is the line of the week. But the part that should worry anyone buying SPCX Friday isn't the leasing pivot, it's that Google is both the anchor tenant and an investor whose stake gets repriced by the very revenue narrative it's underwriting.
The race to build-out LLM AI hardware capacity and the idea that growth of the LLM AI market seems to be compute-limited suggests to me that there must be a lot of research going on in how to make LLM compute (training and inference) more efficient -- better training algorithms, more efficient models and model structures, maybe even new hardware designs. When the breakthroughs start piling up, then the hardware build-out will probably stall, and the folks renting compute will be less willing to pay premium rent (because they will need less compute). In which case it will be better to be a renter than a landlord.
Reminds me, somewhat, of the optical fiber build-out during the dot com bubble circa 1990s. The number of channels that could be carried by the same/existing physical fiber was increasing geometrically (I think about twice as fast as Moore's Law for compute) and eventually the fiber build-out collapsed and high flyers like Lucent and Alcatel imploded. The improvements in fiber multiplexing wasn't the whole story but it was a significant part of the story.