Oracle Stock Slides After Report Cloud Deal With Musk’s xAI Is Off

Oracle (ORCL) is no longer in talks with Elon Musk’s xAI startup for an expanded cloud-computing deal to train large language models, according to The Information. Oracle stock fell following the report.

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The Information had reported in May that xAI and Oracle were in talks on a multiyear deal to provide cloud servers for xAI, worth up to $10 billion. Oracle’s cloud infrastructure business has already provided xAI with specialized chips from Nvidia (NVDA). But the two sides ended talks to expand their arrangement, The Information reported, citing unnamed sources.

Instead, xAI will buy chips from Nvidia to build a data center of its own, according to the Information. Shortly following the report, Musk wrote on X.com Tuesday afternoon that xAI decided to build a system internally because “our fundamental competitiveness depends on being faster than any other AI company. This is the only way to catch up.” Musk also owns X, which was formerly called Twitter.

An Oracle spokesperson said the company had no comment.

On the stock market today, Oracle stock fell 3% to close at 140.68.

AI Push Powers Oracle Stock

Oracle Chairman Larry Ellison highlighted Musk’s xAI as one of Oracle’s cloud AI startup clients on the company’s earnings call in December.

Musk wrote on X Tuesday that xAI contracted for 24,000 H100 chips from Nvidia through Oracle. The company used the computing power to train its upcoming Grok 2 large language model. But xAI is now building its own data center, with 100,000 Nvidia processors. Musk asserted it will be the most powerful AI training cluster in the world.

Oracle’s cloud infrastructure business, called OCI, rents cloud computing servers and storage to enterprises. The business is a key part of Oracle’s transition from legacy database provider to cloud services company and is closely watched by investors.

Even with the dip Tuesday, Oracle stock is up 34% this year. That easily outpaces a 17% gain for the S&P 500.

Shares gained 13% following Oracle’s fiscal fourth-quarter earnings report on June 11. With the report, Oracle Chief Executive Safra Catz said the company is seeing “enormous demand for training AI large language models.” That included a deal to provide additional cloud capacity to ChatGPT creator OpenAI, which otherwise is partnered with Microsoft (MSFT).

The gains saw Oracle stock earlier break out of a cup base with a 132.77 buy point, according to IBD MarketSurge charts.

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