Musk’s Memphis AI empire is the epitome of data center regression

Two years after Elon Musk made Greater Memphis the center of his ambitions for artificial intelligence, building data centers and high-speed energy infrastructure, residents are facing unwanted consequences, including noise and emissions from natural gas engines.

Now, the public opposition to the SpaceXAI sites, known as Colossus and Colossus II, provides a blueprint for other communities across the country opposing AI development.

This week, New York Governor Kathy Hochul announced a one-year moratorium on the construction of AI data centers in her state, drawing the ire of US President Donald Trump, Musk’s ally.

And last week, New Jersey Gov. Mikey Sherrill passed legislation to ensure that data center operators pay a fair share of electricity, instead of shifting the cost to residents and businesses.

Other policy proposals, protests and lawsuits continue, many citing Memphis and SpaceXAI, which was acquired by Musk’s defense contractor, SpaceXin February.

“If you think about what Colossus was doing, it wasn’t good,” said Jigar Shah, former director of the US Department of Energy’s lending program office, and a longtime energy entrepreneur. “It is certainly an example of what should not be done in a large part of the country. But from the point of view of the capitalists, they have been rewarded.”

In June, SpaceX released a record-setting IPO, with AI and its Colossus I and II missions at the heart of its growth narrative.

Google, Anthropic and Reflection AI all have inked deals with SpaceX to lease excess computing capacity on Colossus and Colossus II, deals worth up to $2.32 billion a month.

Citizens do not feel the same benefits. Several told CNBC that SpaceXAI never discussed their plans with them before they left, even though it’s clear the data centers will have a big impact on nearby areas.

Today, the noise from the Colossus II and its gas-burning engines is “like a form of torture,” said Jason Haley of Southaven, Miss., whose home is within a mile of the site. Southaven is part of the Greater Memphis area.

The opposition of data centers is increasing, and not only against xAI, but also in response to planned or ongoing developments Microsoft, Meta, Google, OpenAI and other so-called hyperscalers.

In May, seven in 10 Americans said they opposed the construction of AI data centers in their area, according to a Gallup poll. Almost half, or 48%, said they were strongly opposed.

Even Musk has acknowledged public distaste for AI data centers and power plants to operate.

“Very few people are looking for an electrical outlet in their backyard,” Musk said in an interview JPMorgan CEO Jamie Dimon at a roadshow ahead of SpaceX’s IPO. “If we wanted to, say, double the electricity consumption in the United States,” he said, “we would have to build twice as many power plants. A lot of communities are not very happy about that.”

Musk and SpaceX did not respond to multiple requests for comment about their Memphis building setback.

SpaceXAI has purchased more than 1,100 acres in Greater Memphis for its data centers and energy center.

Data centers were initially built to train and run Grok AI’s xAI and chatbot models, which were mired in controversy.

Data centers have been around for decades, but the growth of the facility began after AI for manufacturing caused an explosion in demand for data processing and power. Buildings often require lots of land, energy to power the chips and servers inside, and water to cool the high-tech equipment.

For all their complexity, once built, data centers don’t require a lot of labor to operate, and they don’t always generate large numbers of new jobs or large amounts of tax revenue.

Memphis residents and climate activists are sharing their experience as a cautionary tale, using lessons learned to help other communities push for revised laws, or better deals with data center developers.

Their testimony has directly and indirectly influenced policies, lawsuits, elections and movements beyond Memphis.

Communities in nearby Olive Branch and Jackson, for example, have revised their zoning laws, citing a desire to avoid the pitfalls Memphis residents faced when Musk moved to the city.

In June, the president of the Utah state Senate, Stuart Adams, lost in the Republican primary after supporting a proposed data center backed by investor Kevin O’Leary. Two other local officials who sponsored the project were also defeated in the primary election.

Musk’s Colossus I data center was completed in just 122 days, he said in a post on September 2, 2024, announcing that the data center had been brought online.

In its first year of operation, SpaceXAI paid $25 million in taxes, making it the second largest taxpayer in Shelby County after FedEx, said Memphis Mayor Paul Young, who helped bring the data center business to the county.

“Since the beginning of this project, we have been looking at how to minimize the potential negative impacts and how to maximize the positive effects,” said Young. He acknowledged that SpaceX hasn’t delivered on everything it promised, such as delays in construction of a water recycling facility meant to reduce the company’s need for more water to cool the Colossus machines.

Residents around Greater Memphis told CNBC their water and electric bills went up after SpaceXAI moved into the city.

Memphis Light Gas & Water said its water and electric rates were “not affected” by SpaceXAI.

“The proposed 4% rate increase for 3 years starting in 2024 is not due to any data center load,” a spokesperson for the agency told CNBC via email.

Last year, Haley joined a neighborhood group called the Safe and Sound Coalition, to take noise measurements, raise awareness and motivate company and municipal leaders to make changes.

In March, Southaven Mayor Darren Musselwhite promised to “tighten the law” on noise but told Haley, in emails read by CNBC, “you might want to think about selling your home.”

Musselwhite told CNBC in an email Thursday that he “worked long hours to mitigate noise concerns,” and “never told a resident to evacuate.”

Haley and other Southaven residents sued SpaceX in a proposed class-action lawsuit filed in June of this year, claiming the company created a “public nuisance” over the noise from Colossus II.

Following in their footsteps, the neighbors of Microsoft’s Fairwater Data Center in Mt. Pleasant, Wisconsin, this month filed a proposed class action on noise issues.

In April, the Southern Environmental Law Center and Earthjustice sued Musk’s company on behalf of the NAACP in federal court in Mississippi. They allege the company violated the Clean Air Act by using dozens of gas-burning engines without the necessary permits, and without the pollution controls in place from the start, to power its facilities.

The types of turbines SpaceXAI uses in Memphis can emit thousands of tons of smog-forming nitrogen oxides per year, according to manufacturer data sheets. SpaceXAI also emits particulate matter called “PM 2.5,” or “particle pollution,” from construction and operation.

NAACP attorneys asked a judge to issue an emergency injunction in May to stop SpaceX from operating dozens of turbines in Southaven. The US Department of Justice quickly intervened, asking the court to throw out the case.

As part of its motion to intervene last month, the DOJ said SpaceXAI technology had been used in US military operations in Iran, and was now essential to national security. They also argued that the case “threatens” America’s national security, economy and power.

SpaceX is defending the NAACP’s lawsuit, saying the current wind turbines are temporary, and there are plans in place for approved turbines with emission controls.

The NAACP released a guide for communities in January on how to protect themselves from “dirty data,” and the framework companies can follow to avoid conflicts with neighbors such as SpaceXAI in Memphis.

Attorney Abre ‘Conner, who leads the NAACP Center for Environmental and Climate Justice, said that SpaceXAI and other companies are moving into areas that are already polluted by industry, “deepening the places of sacrifice for many of these members of the community who have been fighting to get out of them for a long time.”

In Whitehaven, Tennessee, where most of the residents are black, long-term residents, Loretta Thornton said she invested some of her retirement and savings money to renovate her house, bordering the Colossus II fence.

He said the sell-and-go proposals don’t seem to be working, especially as housing costs and interest rates rise.

“You have to put up with this. And that’s all I’m doing,” Thornton said. “I know I won’t be able to sell my property. Who will want to buy it, living next to this thing?”

– CNBC producer Andrew Evers contributed reporting.