Dell to secure a $5 billion AI server deal with Elon Musk’s xAI

Dell Technologies is finalizing a $5 billion agreement to supply AI-optimized servers to Elon Musk’s artificial intelligence startup, xAI, according to a Bloomberg report. The contract, which is in its final stages, will see Dell delivering high-performance AI machines equipped with Nvidia’s GB200 semiconductors to xAI later this year.

The report claimed that while a few minor details are still being discussed, the core agreement is set. The deal cements Dell’s role as a major AI infrastructure provider, as companies scramble to secure advanced computing power to meet rising AI demands.

xAI expands AI infrastructure with Dell’s high-performance servers

Elon’s xAI, launched to compete directly with OpenAI, has been rapidly expanding its AI computing capacity. Its Memphis data center, already running on a mix of Dell and Super Micro servers, is set to receive a large shipment of new AI servers under the deal.

Dell has been aggressively expanding its AI server market share, and it’s paying off. In December, the company confirmed it had deployed tens of thousands of GPUs at xAI’s Memphis facility. A Dell executive at the time reportedly told Bloomberg that the company was pushing to secure an “unfair share” of the remaining AI infrastructure build-out.

The Nvidia GB200 chips powering this deal are currently the most sought-after AI processors, with demand far exceeding supply. Elon has been clear about his need for AI computing power, as xAI’s Grok chatbot, integrated into X (formerly Twitter), requires enormous GPU resources to function.

In December, xAI raised $6 billion in funding, with Elon openly stating that a large chunk of that would go toward securing GPUs. “The more GPUs, the better,” Elon previously said, emphasizing hardware as the key to AI dominance.

Analysts estimate that Dell shipped over $10 billion in AI servers in its last fiscal year. With the xAI deal and rising enterprise AI demand, projections suggest Dell’s AI server sales could hit $14 billion by January 2026. Investors will be looking for AI-related revenue updates when Dell reports its Q4 earnings on February 27.

Following reports of the xAI deal, Dell stock surged 4% on Friday, as investors bet on AI infrastructure demand driving future growth. The company already reported $3.6 billion in AI server orders in its last quarterly results, a significant chunk of its $24.37 billion in total revenue, which was up 10% year-over-year.

The AI computing arms race is heating up, with competitors like Super Micro and Hewlett Packard Enterprise also scrambling to meet demand.

Meanwhile, the Invesco QQQ Trust (QQQ), which tracks tech stocks like Dell’s, hit its highest level since December 18, when the Federal Reserve announced there will fewer rate cuts in 2025. Since then, QQQ has been trading within a 4% range, fluctuating between $515.01 and $536.88, and Meta, which accounts for 4% of the QQQ index, has gained 6.4% in February alone, according to the data from Invesco.

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