Musk Bets Big On AI in Memphis --- His artificial-intelligence company sprints to catch up in tech race

“MEMPHIS -- For Elon Musk, ground zero of the artificial intelligence arms race is a 114-acre tract of grass and swamp on the state line of Tennessee and Mississippi.

 

This once-sleepy plot of land, filled with groves of water-rooted tupelo trees at its western edge, is now part of a growing empire Musk is accumulating in the Deep South, just a few miles from Elvis Presley's homestead at Graceland.

 

Labor crews hired by Musk's xAI were excavating power equipment on the site -- a defunct energy plant just over the state line in Mississippi -- and preparing to build a new plant capable of generating over a gigawatt of electricity, enough to power around 800,000 homes. Engineering permits show that Musk plans to route transmission lines that will connect the new power plant to a million-square-foot data center also under development just north of the border, in Tennessee.

 

Memphis is the front line of Musk's costly foray into the AI wars. His artificial intelligence company, xAI, has already built one massive data center here that it calls the world's largest supercomputer. That facility, called "Colossus," houses over 200,000 Nvidia chips and powers the technology behind the AI chatbot Grok. Now, Musk is close to finishing the second facility, which will be even bigger. He calls it Colossus 2.

 

The AI arms race is shaping up as the most expensive corporate battle of the 21st century. The more cutting-edge chips companies have, the smarter their models are. Morgan Stanley estimates companies will spend over $3 trillion on AI infrastructure through 2028. But at this stage it's unclear if or when the enormous investments will pay off.

 

Musk, who has been at the forefront of innovation in electric vehicles, rockets and brain-computer interfaces, is in the unusual position of playing catch-up to rivals like Sam Altman's OpenAI. Finishing Colossus 2 will cost tens of billions of dollars, some AI and data center experts say. The Nvidia chips alone cost a fortune: Musk will need to spend at least $18 billion for the roughly 300,000 more chips he needs to complete the Memphis project, a person familiar with the project's financials said. Musk said in July that Colossus 2 will have a total of 550,000 chips and has separately signaled it could eventually have a million processing units.

 

Musk is burning cash at a breakneck clip. Earlier this year, xAI raised $10 billion through a combination of debt and equity. The company was slated to run through about $13 billion in cash in 2025, according to projections shared with creditors a few months ago, The Wall Street Journal previously reported.

 

Musk turned to his privately held SpaceX to chip in $2 billion, an unusual move for a company that rarely makes outside investments.

 

"In typical xAI and Elon fashion, the company's future is highly unpredictable," said Dylan Patel, CEO of research company SemiAnalysis. "Elon will do everything he can to not lose to Sam Altman."

 

xAI declined to comment.

 

For Memphis locals, Musk's arrival has kindled hopes of an economic renaissance, but it has also stoked controversy. Musk's data centers will probably bring in only a few hundred jobs to Memphis while consuming millions of gallons of water a day and more electricity than is needed to power all the city's homes.

 

Natural-gas turbines powering the data centers have brought pollution and controversy over their use -- xAI has argued that many of the structures are temporary and don't require a permit. Some residents question plans for the utility to issue rebates to xAI for building the new power structures it needs.

 

Musk's pitch to Memphis is that he is building infrastructure that will benefit the city. The company has promised to construct a giant wastewater recycling facility, to be used in its cooling system, that would help reduce demand on the Memphis aquifer. The company has also donated funds to Memphis schools and hired workers to pick up trash around the city.

 

"In one year, xAI has become the second largest taxpayer in the city and county after FedEx," said Bill Dunavant III, a Memphis businessman who sits on the board of directors of the city's chamber of commerce.

 

Critics say the project is a big risk and could leave residents with pollution caused by the natural-gas turbines and higher electricity bills stemming from the extreme demand on power.

 

"Memphis is desperate," said Batsell Booker, a 65 year-old retired firefighter who lives in the neighborhood next to Colossus. "And this is not the first time that they have been so desperate for companies. They come in and promise them the world."

 

AI wars

 

Even though Musk has called AI humanity's "biggest existential threat," he was a co-founder of OpenAI alongside Altman in 2015. He left after the two had a falling-out after Musk demanded that he should become its CEO or have it merge with Tesla, the electric-vehicle maker controlled by Musk.

 

He set out to build his own artificial intelligence and got a boost from his acquisition of Twitter in 2022.

 

In 2023, Musk incorporated xAI and soon launched Grok. By that point, OpenAI had already vaulted far ahead in the AI race with the launch of ChatGPT. Musk moved to raise $1 billion from investors and contacted existing data center providers, hoping to find a facility that could house 100,000 Nvidia chips and become a hub for AI training. Nothing was available.

 

"We got time frames from 18 to 24 months. That means losing was a certainty," Musk said about that time during the launch of Grok 3 in February. "The only option was to do it ourselves."

 

Musk and his team looked at eight locations across the U.S. before turning to Memphis. They zeroed in on the city because of an abandoned factory there that was previously home to Electrolux, a Swedish appliance manufacturer that had closed the facility and laid off around 500 workers a few years earlier.

 

Musk and his staff told the chamber of commerce that xAI had three main concerns when setting up shop in Memphis: power, water and speed.

 

During one conversation in early 2024, the head of the chamber, local businessman Ted Townsend, teamed up with the head of Memphis's local utility provider to convince Musk that he would have all the power he needed in the city, people familiar with the call said.

 

Memphis Light, Gas and Water, the utility, denied xAI was assured they would have all the power they needed. "They were informed that a system impact study would be conducted to determine what would be required to serve the load without adversely impacting existing customers or the bulk electric system," said a spokeswoman for the utility. If any impacts are identified, xAI would be required to pay for upgrades, she said.

 

Artificial intelligence requires massive amounts of power. "Each unit is doing a very simple calculation, but there are so many such small units, and overall, the power consumption is really huge," said Shaolei Ren, professor of computer science at the University of California, Riverside. "A server with 16 chips, smaller than a piece of checked baggage, needs the same power as five to 10 households."

 

xAI representatives said they would be willing to build a lot of the infrastructure that xAI would need, including power substations around the former Electrolux factory, and they promised to turn over the works to the city for public use in exchange for rebates on the company's utility bills.

 

Representatives from MLGW, the utility, agreed to the rebate programs, which have drawn some criticism from local environmental groups because they believe it is effectively a subsidy for xAI, while the high demand on the power grid and cost of new infrastructure will result in higher bills for consumers.

 

The utility said that xAI's construction of a substation wouldn't impact residential rates, which are set by the utility's board of commissioners and approved by the city council.

 

Musk's company signed a lease on the building in March 2024.

 

Colossus erected

 

In order to get electricity from the local utility, xAI had to first refurbish nearby power substations that could handle the large electric load Colossus would require. The work on the first substation would take nearly a year.

 

Musk couldn't wait, so he set up 14 natural-gas turbines as a temporary power source for the data center. To help cool down the processing chips, Musk said he rented about a quarter of the country's mobile cooling capacity, while the company worked with SuperMicro to procure liquid-cooled server racks for longer-term use. Musk also had a farm of Tesla batteries installed and reprogrammed to help ensure that the power supply to the building was smooth.

 

By September 2024, after bottlenecks and false starts, the team was ready to put the Memphis supercomputer to work training Grok, using some 42,000 Nvidia chips that had been installed. It had taken 122 days to make that breakthrough.

 

Musk decided to name the data center Colossus -- a reference to a popular trilogy of sci-fi novels from the 1960s by D.F. Jones, in which scientists built a supercomputer named Colossus that gained autonomy and plunged the world into war and chaos.

 

As more chips came online, Colossus needed even more power. At its peak, Musk had around 35 natural-gas turbines at the Colossus site, capable of producing 420 megawatts of power, enough to power the roughly 250,000 homes in the Memphis city limits.

 

The large turbines emitted enough nitrogen oxides and other pollutants to require a permit from local authorities, according to an August 2024 letter from the Southern Environmental Law Center to the Shelby County Health Department. Health officials responded in July this year that xAI wasn't required to obtain a permit for the turbines because the setup was supposed to be temporary.

 

In the poor, mostly Black neighborhoods of South Memphis near the data center, residents said they smelled the pollutants not long after xAI started operations.

 

In January, after Colossus had been operating for about six months, xAI applied for a permit for 15 of the natural-gas turbines at Colossus. They moved 13 turbines elsewhere, with some going to a storage facility in Mississippi. The permit requires that xAI measure the turbines' emissions and keep them below a certain threshold.

 

At Colossus 2, however, around seven turbines -- located across the state line in Mississippi -- are now operating without a permit.

 

Mississippi approved the use of the turbines in Southaven but "implored" xAI to minimize the emission of nitrogen oxides and other pollutants, according to a July 29 letter to the company from Jaricus Whitlock, the air division chief of the Mississippi Department of Environmental Quality.

 

The agency said regulations specifically provide for the temporary operation of mobile source turbines.

 

xAI plans to install a total of 18 temporary turbines at the site, according to correspondence between xAI and Mississippi environmental officials reviewed by the Journal. In August, xAI filed an application for a permit to eventually have 41 permanent natural-gas turbines in Southaven that could generate over a gigawatt of power, according to the correspondence.

 

Transmission lines feed power to the data center on the Tennessee side of the border. In June, Memphis said an air quality test near the data centers found pollutants were "too low to detect or well below established safety protocols." In August, the Memphis City Council voted to designate 25% of xAI's Memphis tax revenues for communities near the facilities.

 

After the first Colossus went online last year, Musk quickly put Grok on the map, impressing AI experts with some of the model's capabilities. This year, it outperformed models from OpenAI and Google in several advanced tests.

 

But xAI's chatbot also drew criticism this summer when it started to post violent and antisemitic comments directed at users on X. xAI had to temporarily disable the chatbot on social media and issue a public apology.

 

In July, Musk said the Colossus 2 facility was getting ready to start training Grok. He also said he is importing a prefabricated power plant from abroad to power the whole operation.

 

On the financing front, Musk is exploring a way to stock up on $12 billion worth of chips without buying them outright, instead leasing them through a complex financing arrangement with an outside partner, the Journal previously reported. Tesla shareholders will vote in November on a proposal for the EV maker to invest an unspecified amount in xAI.” [1]

 

1. Musk Bets Big On AI in Memphis --- His artificial-intelligence company sprints to catch up in tech race. Saeedy, Alexander.  Wall Street Journal, Eastern edition; New York, N.Y.. 07 Oct 2025: A1.