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đź‘ľMusk's AI Gaming Studio
PLUS: OpenAI's $38B AWS Deal | SoftBank Liquidates For OpenAI
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🗞️In this edition
xAI enters gaming with AI studio
Sponsored: Remio - AI powered personal knowledge hub
OpenAI signs $38B AWS compute deal
SoftBank sells Nvidia to fund OpenAI
In other AI news –
Japan commits 6 billion to build a home grown AI model
Waymo restarts San Francisco robotaxi service after blackout
European industrials eye 2026 boost from AI and electrification
4 must-try AI tools
Hey there,
On one end, xAI is stepping into gaming, recruiting developers to build AI-native games from scratch. It’s a bold attempt to create a consumer product where AI isn’t just a feature but the entire experience. On the other, OpenAI is doubling down on scale, signing a $38B, seven-year compute deal with AWS that effectively locks in its infrastructure strategy for the next decade. And behind the scenes, SoftBank is liquidating assets at record speed to keep its $22.5B OpenAI commitment alive the biggest, riskiest bet Masayoshi Son has ever made.
We're committed to keeping this the sharpest AI newsletter in your inbox. No fluff, no hype. Just the moves that'll matter when you look back six months from now.
Let's get into it.
What's happening:
Elon Musk's xAI is entering gaming. The company posted a public call for game developers to build AI-driven video games, marking its first consumer product beyond AI assistants.
xAI wants to create games "from first principles" using AI at the core of gameplay design. That means worlds, characters, and interactions that change dynamically based on player behavior and real-time AI decisions.
The company's asking developers to reach out directly suggesting early-stage hiring, not a structured studio launch yet. They're in exploration mode, scouting talent.
The pitch: adaptive experiences where AI generates environments, dialogue, and challenges dynamically instead of scripted NPCs and fixed storylines. Each player's journey differs significantly. Games evolve without traditional updates or expansions.
Why this is important:
xAI's targeting the $200B+ gaming industry with a fundamentally different approach to game design.
Traditional games are static. Developers script every line of dialogue, every enemy behavior, every quest outcome. xAI's betting AI can generate all of that dynamically infinite content without human developers building every asset.
This addresses gaming's biggest bottleneck: content creation. AAA games take 5+ years and $200M+ budgets because humans manually craft every experience. AI-generated content could collapse those timelines.
The "from first principles" framing matters. xAI's not adding AI features to existing games. They're rethinking what games are when AI generates everything in real-time.
If it works, this threatens Ubisoft, EA, and Activision's business models companies that monetize predictable content pipelines and annual releases.
Our personal take on it at OpenTools:
xAI's attacking the right problem with the wrong timing.
Procedurally generated games have failed for 20 years. No Man's Sky promised infinite worlds and delivered boring repetition. Minecraft succeeded because human creativity built on top of procedural generation, not because the algorithm was interesting.
The difference now? LLMs can generate coherent narratives and believable NPCs. That's the unlock. But we're still 2-3 years from AI that creates genuinely fun gameplay loops consistently.
Here's why this matters beyond gaming: xAI needs a consumer product. Grok competes with ChatGPT and Claude but isn't differentiated. Gaming gives xAI a unique use case where real-time AI generation is the product, not a feature.
Musk's reposting the developer himself signals this is strategic, not experimental. He wants xAI to own a category where OpenAI and Anthropic aren't competing yet.
The "from first principles" language is classic Musk. It sounds innovative but means "we're ignoring how games actually work." Game design is iterative playtesting, not AI optimization. The best games feel good to play, that's human intuition, not something AI generates.
But if xAI cracks adaptive storytelling where NPCs remember your choices across sessions and worlds evolve based on player behavior? That's a new game category. Not better than scripted AAA games, just different.
The risk? Gaming is littered with failed AI experiments. xAI could burn millions before admitting players prefer handcrafted experiences. Or they could create the first AI-native game genre and own it entirely.
Five years from now, this either looks like Google Stadia (shut down after burning billions) or Fortnite (invented a category and printed money). There's no middle ground when you're reinventing games.
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What's happening:
OpenAI signed a $38 billion, seven-year deal with AWS for massive compute access NVIDIA GB200/GB300 GPU clusters and EC2 UltraServers with vast CPU capacity.
Sam Altman: "Scaling frontier AI requires massive, reliable computers. Our partnership with AWS strengthens the broad compute ecosystem that will power this next era."
The deal includes tightly connected GPU clusters networked through EC2 UltraServers for low-latency, high-throughput workloads supporting both inference and training.
According to Exploding Topics, 63% of top-performing companies are increasing cloud budgets for GenAI. Meeting global AI compute demand could require $5.2-$7.9 trillion in capex by 2030.
Why this is important:
Compute scarcity is over. Architecture is the new bottleneck.
For years, AI teams fought for GPU access. Now the question is: can you actually use scale efficiently? Endless compute means nothing without clean pipelines, efficient model routing, and reliable data infrastructure.
The $38B commitment locks OpenAI into AWS for seven years. That's longer than the iPhone has existed. Infrastructure decisions at this scale determine product velocity for the next decade.
The timing matters. OpenAI's burning cash on computers while racing to profitability. This deal shifts capital risk to AWS while guaranteeing OpenAI's capacity through 2032.
Enterprise teams benefit immediately. Pro-level GPU clusters are now accessible without custom negotiations. But that creates a new problem: teams with bad architecture will waste millions on computers they can't use properly.
Our personal take on it at OpenTools:
OpenAI just outsourced their biggest operational risk to AWS.
$38 billion over seven years is $5.4B annually. That's more than OpenAI's current revenue run rate. They're betting they'll grow into this capacity and if they don't, they're contractually locked in anyway.
AWS wins either way. They lock OpenAI out of Google Cloud and Azure for seven years while capturing billions in guaranteed revenue. Even if OpenAI's growth slows, AWS gets paid.
But here's what people miss: this isn't about OpenAI. It's about AWS signaling to every AI company that compute supply is no longer the constraint. Microsoft and Google Cloud will respond with similar mega-deals in 90 days.
The $5.2-$7.9 trillion estimate for AI data centers by 2030 is insane. For context, that's more than the entire US federal budget. Hyperscalers are building the infrastructure before demand is proven because they learned from mobile build it and they will come.
Two outcomes: companies with clean architecture scale effortlessly. Companies with brittle systems hit unpredictable costs and performance walls. The gap between winners and losers widens fast.
What's happening:
SoftBank's racing to close a $22.5 billion funding commitment to OpenAI by year-end through a massive cash-raising scramble.
CEO Masayoshi Son already sold SoftBank's entire $5.8B Nvidia stake, offloaded $4.8B in T-Mobile shares, and slashed staff. He's now looking at undrawn margin loans against Arm Holdings ownership recently expanded by $6.5B to $11.5B total capacity.
SoftBank's pushing PayPay's IPO (expected to raise $20B+) to Q1 2026 after delays from the 43-day U.S. government shutdown. They're also cashing out Didi Global holdings as the Chinese ride-hailing company lists in Hong Kong.
Son's slowed Vision Fund dealmaking to a crawl any deal over $50M now requires his explicit approval. Investment managers are being redirected toward the OpenAI deal.
Why this is important:
This is the biggest bet Masayoshi Son's ever made and he's liquidating everything to fund it.
SoftBank promised $30B to OpenAI: $10B paid in April, $22.5B due by year-end. The second payment was contingent on OpenAI becoming for-profit by December which OpenAI achieved in October.
Son's going "all-in" means he's liquidated Nvidia (the best-performing AI stock), dumped T-Mobile shares, and froze Vision Fund investments. He's betting OpenAI's trajectory beats owning the companies powering AI infrastructure.
The Arm margin loans are critical. SoftBank borrowed against Arm's stock, which tripled since the IPO. That collateral expansion gives them $11.5B undrawn capacity, half of what they need.
OpenAI desperately needs this cash. They're in "code red" mode competing with Google's Gemini. Sam Altman wants to build 30 gigawatts of compute for $1.4 trillion adding 1 gigawatt weekly at $40B+ per gigawatt.
Our personal take on it at OpenTools:
Masa Son's either building the next Alibaba or burning $30 billion in 18 months.
He sold Nvidia at the peak to fund OpenAI betting OpenAI's equity appreciation beats Nvidia's growth. That's a massive call. Nvidia's up another 40% since he sold. If OpenAI doesn't hit $900B+ valuation, he leaves billions on the table.
The $300B-to-$900B OpenAI valuation jump in eight months is wild. If accurate, SoftBank's $30B investment is worth $90B on paper a 3x in less than a year. But paper gains mean nothing until liquidity. OpenAI's still unprofitable and burning billions quarterly.
Here's what keeps us up: Son's bet assumes OpenAI wins AGI and becomes the most valuable company ever. If Gemini catches up, if computer costs spiral, if regulation hits SoftBank's holding illiquid equity in an overvalued private company while sitting on margin loans they can't refinance.
The Vision Fund freeze is telling. Son's stopped making new bets to fund one mega-bet. That's concentration risk at extreme levels. Diversification exists for a reason.
Two years from now, this either looks like the smartest investment in tech history or the biggest capital misallocation since WeWork. There's no middle ground when you liquidate Nvidia to buy OpenAI.
Japan announces US$6 billion support for home-grown AI development – A new company will be established by around 10 firms including SoftBank Group Corp, aiming to develop the country’s largest base AI model.
Waymo resumes service in San Francisco after robotaxis stall during blackout – Numerous photos and videos posted to social media captured Waymo robotaxis stalled at roads and intersections as human drivers were either stuck behind them or weaved around them.
AI, Manufacturing Reset Spell 2026 Boon for European Industrials – After a year marked by tariff uncertainty, Europe’s industrial giants are expecting a solid 2026 as the data center buildout continues, electrification demand accelerates and manufacturing activity recovers.
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