From 'Space Balls' to 'Stargate'
Various
This is a solid follow-up and summary of where 'The Stargate Project' stands and how it came to be from Aaron Holmes, Anissa Gardizy, and Amir Efrati.1 As a reminder, this "new" announcement is really more like a bunch of old announcements re-bundled in sexy new, expensive packaging – a re-gift, as it were. And this report has a few new details/reminders about how we got here. And perhaps the most interesting/fun wrinkle is buried about halfway through the report, so I'll call it out here:
Musk had previously talked to Oracle and a small data center developer, Crusoe, about designing a site in Abilene, Texas, for xAI, code-named Project Ludicrous, a reference from the film “Space Balls.” After Musk suddenly opted to build his own data center instead of working with Oracle, Altman pounced, according to three people who worked on the deal. Starting in June, Oracle began working with Crusoe on developing the site for OpenAI instead.
To spell it out more clearly: it's not just that Elon Musk is annoyed about the Stargate project because "he hates one of the people in the deal," to quote President Trump, or that he was mad when he was left out of the announcement (and perhaps out of the loop entirely?!), it's that Elon Musk must be furious because he's the one who actually made the entire Stargate project possible!
It was more of a footnote in the xAI 'Colossus' GPU supercomputer reports at the time, but yes, Musk had been working with Oracle on building out such capacity, which kicked off the Abilene, Texas facility. But Musks' impatience – he presumably didn't want to wait until mid-2025 to launch the datacenter (for one thing, NVIDIA's 'Blackwell' chips aren't fully ready yet) – led to xAI going on their own (and teaming up with Dell and Supermicro to get enough NVIDIA chips to power the facility). They built that facility in an absurd 122 days (though there was some discrepancies in the reports of just how "done" it was) and announced it in September – more than six months before Oracle's facility would be ready.
As I wrote a few weeks later, as OpenAI was clearly scrambling to respond:
Just to make this even more awkward, those were seemingly servers which initially were promised to Musk's xAI, but he went elsewhere (Dell and Supermicro) when they were taking too long – sound familiar? Now OpenAI wants to lease the entire site, with a target of "several hundred thousand" NVIDIA chips. That would, of course, be more than the 100,000 NVIDIA chips that xAI says it just lit up (though it's probably less right now), but that's just a starting point.
When xAI pulled out of the Oracle project in July, Larry Ellison quickly turned around and signed a deal with Microsoft to rent the capacity to give to who else? OpenAI. While undoubtedly none of the parties knew it at the time, this put the Stargate wheels in motion...
Though yes, technically those had also already been in motion, in a more grandiose way, if you can believe it – back to The Information report:
The idea for Stargate goes back a couple of years. Microsoft and OpenAI for years had developed special clusters of servers for training AI, including at a key Microsoft facility in the Phoenix area. In 2023, after the runaway success of ChatGPT, they plotted ever-bigger supercomputers to speed up the development of more powerful AI.
The biggest one would cost an estimated $100 billion—100 times more costly than some of today’s largest data centers—and would contain millions of AI chips, The Information reported. Microsoft employees referred to the project as Mercury. OpenAI talked about it internally as Stargate, a reference to the 1994 film by that name about a wormhole device that allowed instantaneous travel between solar systems.
Microsoft and OpenAI discussed the possibility of building such a facility for OpenAI by around 2030, according to multiple people at both companies who were involved in the talks. Before then, Microsoft planned to build smaller facilities for OpenAI in Wisconsin and Georgia.
Why wait for 2030 when you can jump on a massive datacenter that your key rival just abandoned? At the same time, per the reporting, Microsoft was debating internally just how much sense it made to commit so much capital to such projects. There's a bigger debate brewing in the industry right now: at what point does it stop making sense, financially, to keep pushing the vanguard of these frontier models? Especially because such work seems to help everyone else, including competitors, make leaps at fractions of the cost thanks to distillation. OpenAI, as the market leader, clearly wanted to keep pushing, Microsoft? Not so much, it seems. They were now clearly committed to start doing inference training on their own. Why foot the bill for OpenAI to keep doing the far more expensive work? At least the total bill?
As such, the Oracle/Microsoft deal shifted to become a direct Oracle/OpenAI deal.2 And PR aside, it does feel like a sort of win/win/win for the parties – well, everyone but Elon, of course.
One more thing: well, two, really...
First, another read into the Microsoft layer of this might be that they're also happy to offload this deal/capacity to Oracle to preemptively alleviate some tensions that will undoubtedly re-surface if and when OpenAI converts into a for-profit entity. Microsoft's stake in that company, which is clearly still being worked through, will be massive. If they're no longer the "exclusive" cloud partner to the company, it may be a bit more palatable to regulators (even under the Trump administration, such a position/partnership is likely to seem... potentially problematic).
Second, another element called out in this report multiple times that I hadn't really considered: cozying up to Oracle/Ellison gives OpenAI/Altman some much-needed cover in a world where Trump and Musk are thicker than thieves. In fact, that may have been the real key to the Stargate announcement – would Altman have been able to convince Trump to do it without Uncle Larry? Unclear, but it certainly helped. And it again points to the potential self-own by Musk here due to his impatience.
This all seems quite... political!
1 The Information has seemingly owned the reporting here, well ahead of their rivals on getting the details, such as the equity commits.
2 Is this also related to why Microsoft has paused work on the aforementioned Wisconsin data center? Unclear, but at least on some level, it's clearly all related.