Why Elon Musk is building giant AI data centres in Memphis, and what it means for the city

Musk’s AI data centre race

On the Tennessee–Mississippi border, Elon Musk’s AI startup xAI is racing to build some of the largest data centres in the world. The first facility, known as Colossus, already runs more than 200,000 Nvidia chips to train the Grok AI model. Now, a second and even bigger complex—Colossus 2—is under construction alongside a dedicated natural-gas power plant designed to generate over a gigawatt of electricity. The goal is simple but immense: scale faster than rivals like OpenAI and Google by securing chips, power, and space before anyone else can, the Wall Street Journal reported.

The economics of scale

The AI industry is projected to spend more than $3 trillion on infrastructure by 2028, according to Morgan Stanley, making it one of the costliest technological races in history. Musk’s vision for Colossus 2 includes 550,000 Nvidia chips, a figure that could expand to a million units over time. The chip bill alone could surpass $18 billion. With construction costs and custom power infrastructure, analysts estimate the project’s eventual price tag will run into the tens of billions. Musk has tapped into his broader empire for funding, securing $10 billion in debt and equity, drawing $2 billion from SpaceX, and potentially looking to Tesla investors for more.

Local hopes and concerns

In Memphis, city leaders see the projects as an economic lifeline. xAI has quickly become one of the region’s largest taxpayers, second only to FedEx, and has pledged to build a wastewater recycling facility to ease pressure on the city’s aquifer. It has also funded schools, community projects, and cleanup efforts, all while promising that new infrastructure will benefit residents long-term.

But critics fear the downsides may outweigh the promises. The data centres will provide only a few hundred jobs while consuming millions of gallons of water per day and drawing more power than all Memphis households combined. Dozens of natural-gas turbines have been deployed as temporary power sources, sparking legal challenges and health complaints from nearby neighbourhoods. Environmental groups worry about higher utility rates, while residents report smelling pollutants since operations began.

Why Musk is building his own power

AI systems require enormous amounts of energy. A single server with 16 GPUs can use as much power as 5–10 homes. Multiply that across hundreds of thousands of chips and the need for custom energy solutions becomes clear. Musk’s approach is to build his own substations and power plants, reducing dependency on public utilities and ensuring faster access to energy. The company has even rented a significant portion of America’s mobile cooling capacity to keep servers from overheating while it installs permanent solutions.

Political and community pressure

Local officials are now trying to balance growth with safeguards. Memphis has begun publishing air quality data, which so far shows pollutants below safety thresholds, and earmarked 25% of xAI’s local tax receipts for surrounding communities. Mississippi regulators have allowed turbines to operate temporarily while permanent permits are processed. Still, critics argue that Memphis, long economically stretched, is vulnerable to overpromising and underregulation when companies like xAI arrive with multi-billion-dollar offers.

What success could mean

For Musk, the Memphis gamble is about more than one city—it’s about ensuring xAI has the computing firepower to rival OpenAI, Google, and Anthropic. Colossus 2 could become one of the most powerful AI training hubs in the world, fuelling Grok’s development and cementing Musk’s place in the next wave of artificial intelligence. But the project also shows the tensions between global ambition and local impact, as communities weigh jobs and tax revenue against pollution and infrastructure strain.

If Musk succeeds, Memphis could become synonymous with the next stage of AI development. If not, it risks being left with empty promises, industrial scars, and a cautionary tale about betting big on the future of technology.