One order equals half a year! Dell is reported to be close to securing a $5 billion order for Musk's xAI servers

Last year, riding the wave of artificial intelligence (AI), Dell, a veteran computer manufacturer, is likely to secure a major AI business deal this year.

On February 14th, Eastern Time, Bloomberg cited sources saying that Dell is close to finalizing a deal to sell AI servers to xAI, an AI startup under Elon Musk, valued at $5 billion, with negotiations entering the later stages.

Sources indicated that if the deal is reached, Dell will deliver servers equipped with NVIDIA's GB200 chips to xAI this year to optimize AI workloads. Some transaction details are still being finalized, and changes may occur in the future.

What does $5 billion represent? It is equivalent to a significant order from xAI alone, nearly double the entire quarterly sales revenue of AI servers, which can be roughly summarized as: one order equals half a year. Dell announced at the end of November last year that in the third fiscal quarter ending November 1, 2024, it delivered $2.9 billion in AI servers, driving a 58% increase in revenue from servers and networking, including AI systems, to $7.4 billion.

Regarding the news of Dell selling servers to xAI, Dell, NVIDIA, and xAI did not immediately comment. However, stock market investors responded enthusiastically. After a slight decline at midday, Dell's stock price surged within about five minutes, reaching a daily high of $117.16, an intraday increase of nearly 6.3%. NVIDIA's gains also expanded to over 1%. Subsequently, Dell retraced some of its gains, while NVIDIA continued to rise. Ultimately, Dell closed up about 3.7%, and NVIDIA closed up about 2.6%.

The news of ordering $5 billion in AI servers from Dell reflects, in part, that xAI's supercomputer Colossus project in Memphis, Tennessee, is gaining momentum.

In June last year, Musk revealed that Dell Technologies and Supermicro (SMCI) jointly supply the server racks needed for xAI's supercomputing. Dell CEO stated in the same month that Dell is collaborating with NVIDIA to build the Dell AI factory to support xAI's large model Grok. Musk responded that, specifically, Dell will assemble half of the racks for the supercomputer being built for xAI.

Colossus is used to support xAI's large AI model Grok, currently running on a cluster composed of over 100,000 NVIDIA GPUs, with xAI planning to expand to at least 1 million GPUs.

In December last year, the Greater Memphis Chamber issued a statement saying that xAI's expansion efforts have begun, and as part of the expansion plan, NVIDIA, which provides GPUs for xAI, and Dell and Supermicro, which assemble server racks, will also establish operations in Memphis In the current month, Dell's Chief Operating Officer Jeff Clarke stated that Dell has deployed tens of thousands of GPUs to support AI work in the xAI supercomputing project.

Clarke said, "We started from scratch and have deployed tens of thousands of GPUs on a large scale in just a few months. The cluster is still under construction, and we are standing out."

Before the xAI supercomputing project potentially brings in large orders, Wall Street is already very optimistic about the growth potential of Dell's AI server business with the upcoming shipment of NVIDIA's next-generation Blackwell chips.

When announcing its third-quarter financial report, Dell stated that the increase in AI server orders has driven a "double-digit" year-on-year growth in demand for its traditional servers. Dell executives noted that in the third quarter, "orders quickly shifted to our Blackwell design." Some customer demand is being deferred to the next few quarters, waiting for NVIDIA's Blackwell chips, which are currently in production but have not yet been shipped in large quantities to end users.

Analysts expect that in the fiscal year 2025, ending in January 2025, the value of Dell's AI server shipments will exceed $10 billion, and they anticipate that AI servers will generate $14 billion in revenue for Dell in fiscal year 2026, representing an annual revenue growth of approximately 40%