How Elon Musk's AI Empire In Memphis Became A Cautionary Tale

[00:00:00] Speaker 1: "It gets louder. Some nights you can smell the fumes from the turbines and there's really, really noise at night. You just have to endure this." [00:00:14] Speaker 2: When South Memphis Tennessee resident Loretta Thornton first heard about XAI's data centers coming to town, construction was already underway. Now she lives next door to one of the world's largest AI data centers. [00:00:32] Speaker 1: "You just can't get no peace anymore. And that's all I'm doing is enduring it. And I know I cannot sell my property. Who would want to buy living beside this thing?" [00:00:42] Speaker 2: Elon Musk's XAI, now known as SpaceX AI following a merger with SpaceX, has made the Memphis area the center of its AI ambitions. It built Colossus One just south of Memphis, Tennessee, which was training AI just 123 days after the groundbreaking. And now construction is underway on two other data centers in south Memphis, originally named Macrohard and Macroharder, now known as Colossus Two. XAI is also building out energy infrastructure to feed its power hungry supercomputers. It purchased a decommissioned power plant in South Haven, Mississippi, and is now operating dozens of methane gas burning turbines for its main energy source. I'm standing outside XAI's power plant in South Haven, Mississippi. There's quite a few turbines that we can see are actively running, and you can see the heat coming off of them. It is quite loud. It reminds me of being at an airport. After breakneck speed in construction, XAI is now facing multiple lawsuits accusing the company of using loud pollution-admitting turbines, some without a permit. [00:01:48] Speaker 3: These folks are complicit in environmentally unjust projects. [00:01:55] Speaker 4: So the power plant that they have built without any air permits to power Colossus Two is unprecedented. I have never seen anything like it. They have been shipping in gas turbines like you would find in a normal power plant. They now have more than 50 of them, almost 60. The vast majority of them are not operating the same kinds of air pollution control technology that you would have at your typical power plant. [00:02:18] Speaker 5: The noise is very annoying. It's inescapable. To me, it's just like a form of torture. The noise is always there. [00:02:27] Speaker 2: Despite the local and national pushback, SpaceX is making serious money from its AI factories. Anthropic is renting compute capacity at Colossus One for up to $1.25 billion per month. And Google is renting compute capacity for up to $920 million a month. AI startup Reflection AI has also inked a deal for Colossus Two Compute for up to $150 million per month. [00:02:50] Speaker 6: When you think about what precedent Colossus has sent, it hasn't been a great one, but it certainly is a case study for what not to do in most of the rest of the country. But from a capitalist standpoint, they got rewarded for it. People concerned with everything from [00:03:04] Speaker 2: AI safety to pollution to electricity and water costs are revolting against AI data centers [00:03:10] Speaker 7: around the U.S. Our public help is not for sale. [00:03:16] Speaker 2: Musk's push in Memphis has become a cautionary tale. [00:03:19] Speaker 3: Memphis is where the resistance was the loudest first. Folks all across the country are learning from what Memphians have continued to do with raising their voices, with organizing, with people protesting. And now, the entire country is catching on. [00:03:36] Speaker 2: CNBC traveled to Memphis and South Haven to learn why data centers are still such a flashpoint, and what hyperscalers can do to win public support as a race to build AI infrastructure nationwide. SpaceX's AI infrastructure in Memphis truly deserves its name, Colossus. It's a sprawling industrial marvel. Drone footage we captured showed the company's massive data centers with cooling systems, gas-powered generation solar farms, and Tesla Megapacks built all around them. Inside there are hundreds of [00:04:18] Speaker 8: thousands of NVIDIA GPUs. Colossus, in that first site, was the former Electrolux facility in Box Town. And that was kind of the main focus from 2024 to 2025. That's now shifted to Colossus 2 and Macro Harder here in South Haven, Mississippi. In two years' time, it's kind of a tale of two different [00:04:37] Speaker 2: hyperscale data centers in two different communities. Neil Striebig is a reporter based in Memphis who has been closely covering the data centers from the ground since they were announced two years ago. [00:04:46] Speaker 8: To give you an idea, too, of just how much has changed since that June 2024 announcement, XAI and its affiliates have acquired over 1,100 acres in Memphis and South Haven areas, and that's about 35 percent of [00:04:57] Speaker 2: the total of downtown Memphis. XAI had broken ground on Colossus 1 before the Memphis Chamber of Commerce announced the data centers to the public. Our community was completely [00:05:07] Speaker 3: blindsided. There was no information given to us ahead of time about what was happening. We used to always have our family reunions here. The most fond memories I have of, you know, hitting basketball shots with my cousins. This area, this is our community. [00:05:26] Speaker 2: Keyshawn Pearson is the director of the Memphis Community Against Pollution and a vocal critic of XAI's data centers. We met him at his friend's barbershop just a few miles from [00:05:37] Speaker 3: Colossus 1 and he gave us a tour of the area. Since inception, our consistent concern was the scope creep of this project. What we continue to see is that XAI has been spreading like a virus. You see a majority black community, majority low wealth community being consistently targeted. [00:05:59] Speaker 9: His neighbors agree. We wish that the city and the Chamber of Commerce would have at least talked to us and let us know what was coming beforehand and gotten our input. The biggest concern for me is the pollutant, our air quality here. Memphis already has a poor rating and just our overall health, how it's going to be affected, especially as they keep expanding. I don't put a lot of my money, my retirement [00:06:24] Speaker 1: money, in this house to reframe it because she's beautiful. I loved it before this noise got here. I thought I was in heaven because it was so quiet and all the wild animals. Now it's not like that anymore. [00:06:37] Speaker 6: The truth of the matter is, is that data centers can be designed the wrong way and they can be designed the right way. [00:06:46] Speaker 2: Jigar Shah is an energy entrepreneur and the former loans director for the U.S. Department of Energy. [00:06:52] Speaker 6: If you design them the right way, they can reduce electricity rates for everybody. So when you look at Excel and Elite in Minnesota, they both are hosting a Google data center. And because they were designed the right way, they filed with the Public Service Commission there an estimate that they were going to save $1.7 billion on people's bills because of how the data centers were integrated into the community. There are other places where the data centers were placed in the middle of the night with no real hearings. Nobody knew they were coming. And there's a lot of folks that are pushing back because they don't think that that's the right way for them to be communicated with. A recent health department [00:07:28] Speaker 7: hearing turned into a shouting match. An executive from XAI ducking out a side door. [00:07:34] Speaker 2: The original deals to bring XAI to Memphis happened under subsidiary company names behind closed doors. But Memphis Mayor Paul Young has been a part of the discussions from the early days. [00:07:44] Speaker 10: Ever since this project began, we were looking at how to mitigate the potential negative impacts and how to amplify the positives. The first year that the project was online, it provided $25 million in taxes to the city and county, making it the second largest taxpaying property in Shelby County next to FedEx. One of the things that we did was we put together what we call a community benefit ordinance. This allows us to have the area within a five mile radius of those two facilities to have 25% of the tax [00:08:20] Speaker 2: revenue dedicated to those communities. We reach out to the groups involved with bringing XAI to the area, including Memphis Chamber of Commerce, the Memphis City Council, Darren Musselwhite, who is the mayor of South Haven, Mississippi. But they did not respond to multiple requests for comment. Colossus One was originally used to train XAI's Grok models, which underpinned the company's AI chatbots and image generating tools. The company is facing multiple investigations and lawsuits after people use Grok to make and share harmful content ranging from hate speech to AI deepfake porn that was based on photos or videos of real people, even children, who did not consent. While XAI is revamping its Grok technology, the company's data centers are generating billions in revenue for SpaceX by leasing out [00:09:04] Speaker 6: compute capacity. When you do things the right way, right, sometimes it can take a little bit more time and it has to be integrated into a process. And when you break all the rules, you know, sometimes you get rewarded with very large contracts. And so it's mixed signals that are being sent around the country, and it's the local residents that end up having to pay for that. [00:09:25] Speaker 2: The Trump administration rewarded XAI as well. In July 2025, the U.S. Department of Defense said it would pay XAI $200 million to develop agentic AI workflows across a variety of mission areas. [00:09:37] Speaker 6: So when XAI started up, they needed a data center and they thought Memphis was a great place. They said, we're just going to start building. And they realized very quickly that Memphis and TVA at the time didn't have the power available to serve them. And so they brought in basically natural gas turbines on skids and said, we're just going to run them off of these things. They learned very quickly that that wasn't going to work because the data center was blowing out a lot of the natural gas turbines because they're so hard on turbines. That's when we learned that building stuff off grid didn't really work. So then TVA had figured out a way to upgrade their service and connect the Colossus data center to the grid. So it is now connected to the grid, but it continues to have natural gas units and batteries behind there just in case TVA needs to turn them down. [00:10:33] Speaker 2: And when power provider TVA turns XAI down, it fires up the generators. XAI leaned into gas-burning turbines, leasing many from Solaris Energy Infrastructure in Houston, because it was looking for the quickest way to build and start operations. But some say the buildout has been chaotic. First, XAI put up a slew of gas-burning turbines before it had the required permits at Colossus I. XAI said at the time that it didn't need permits because they were temporary. Then it got permits for 15 turbines, but was still operating unpermitted turbines. [00:11:04] Speaker 8: The public hearing was in April 2025. That hearing was for 15 turbines at Colossus I. Come summer 2025, some of the environmental advocacy groups may discover those 35 turbines at that site. [00:11:16] Speaker 4: We used a thermal camera and 33 out of the 35 appeared to be operating that day when we flew over. [00:11:22] Speaker 2: Patrick Anderson is a senior attorney with SELC. [00:11:25] Speaker 4: I've been working in air pollution a long time. I'm used to a power plant that might again have six of these same turbines, and they've got 35 of them with 33 operating. [00:11:34] Speaker 2: Others have captured thermal images of the unpermitted turbines operating as well, like this floodlight footage of the South Haven power plant from early 2026. Now Colossus I uses a mix of power sources, including solar, the grid, and turbines with pollution controls, which can cut up to 90% of the most harmful emissions. [00:11:53] Speaker 3: This is XAI Colossus I, and these turbines have the pollution controls on them. [00:12:01] Speaker 2: Now Musk's team is using the same playbook at Colossus II, and this time they're building a gigantic power plant. [00:12:08] Speaker 8: And again, there was a permit approved by the MDEQ in March, yet there are 59 turbines on site, 57 currently but are all unpermitted as well. [00:12:18] Speaker 11: They basically just copied and pasted a lot of the activity of what they had been doing in Memphis, continuing to operate Colossus I, and then to build out Colossus II in South Haven. So in South Haven, they started operating, again, without a permit. This is Aubrey Conner, representing the NAACP. [00:12:38] Speaker 2: The NAACP, along with Earth Justice and the Southern Environmental Law Center, sued XAI in April. [00:12:44] Speaker 11: We believe that we're right on the law. You cannot just operate all of these gas turbines without a permit under the Clean Air Act. [00:12:52] Speaker 4: So it is really important to clarify, the individual turbines that they are operating are of the scale and type that you would find at a power plant. What is unique is the number of them that they have. We see a lot of comparable gas plants. For instance, the Tennessee Valley Authority just received an air permit to install six of these turbines at one of their power plants in Memphis. Meanwhile, XAI and Elon Musk, they have almost 60 of these very similar turbines. And again, the vast majority of them do not have any of the add-on pollution control technology that would really reduce emissions significantly. These same pollutants also include fine particulate matter. This is really probably the deadliest air pollutant out there that's emitted by burning any fossil fuel. They get deep down into your lungs and into your bloodstream and can cause [00:13:42] Speaker 2: heart disease and heart attacks. SpaceX is defending against the NAACP lawsuit, arguing the turbines currently on site are only temporary and plans are in place for permitted [00:13:52] Speaker 11: turbines with pollution controls. The greater Memphis area already is so much concentrated pollution, even a smaller kind of build out would have a major impact on the community. But we're now talking, you know, in the over 50-something gas turbines. [00:14:11] Speaker 2: In recent weeks, the U.S. Department of Justice filed a motion to intervene and is pressing the court to dismiss the lawsuit. As part of its motion, the Department of Defense said that XAI's data centers in the region have been critical to military operations in Iran and national security. We were with Pearson when he found out about the DOJ's involvement. [00:14:31] Speaker 3: I'm extremely frustrated. We should be caring for people. We should be ensuring that people have clean air and a healthy environment to live in. The velocity at which XAI is moving with the assistance of our government is something we have never seen before. [00:14:50] Speaker 10: We are equally concerned. We have issued two air quality studies. We have listed on our website where we're monitoring the air quality and what we found at the air in downtown is the same as the air that's in that community. The air quality concerns that we have in our community are largely driven by transportation, and so we want to monitor what's happening at that facility, but we also want to try to figure out what are going to be the things that truly drive down negative air quality days in our community. [00:15:25] Speaker 6: We use 600,000 megawatts of natural gas turbines in the United States. There's the right way to use them, and then there's the dumb way to use them. The right way to use them is to put them in places to set them back from where people live, because there is real pollution. I think that in an attempt to move quickly, you know, as Silicon Valley is apt to do, they like to move fast and break things, you try to make sure you isolate what they're breaking. Like, you shouldn't be breaking human health. You shouldn't be breaking the trust of the local community. And for some folks, they're rewarded for doing it because they're getting big contracts with Anthropic and Google. And so, you know, some of that is the reason why data centers are in trouble right now. Google did not respond to CNBC's request [00:16:06] Speaker 2: for comment. And Anthropic is having active conversations with the mayor and the community, which will shape its approach as a neighbor, according to the company. Manufactured by companies like GE Renova, Caterpillar, Siemens, and Mitsubishi Power, the turbine industry is booming. Prices of gas turbines are up 300% in the past two years. [00:16:25] Speaker 3: The problem is the use of the energy from these hyperscalers is directly causing a fossil fuel buildout like we haven't seen in decades. This is not innovation. True innovation looks like using clean energy, right? It looks like a product that benefits humanity. All we continue to see is the loss of jobs, our families paying the costs for the energy and the water use. We continue to take the losses. [00:16:55] Speaker 2: We reached out to XAI and executives at SpaceX, but they did not respond to multiple requests for comment. On top of the admission concerns, the turbines are loud. A professional assessment conducted in South Haven described the noise of the turbines as similar to the sound of jet planes. In a series of readings, it found noticeable fluctuation in loudness at a high sound level of 70 decibels, continuous, which can damage hearing over time. Overall, the report found the measured sound levels and character of the noise near Colossus II would easily affect sleep and be a source of stress, hypertension, anxiety, and disorientation. When Jason Haley first heard XAI's Colossus II in power plant, he had no idea where the sound was [00:17:50] Speaker 5: coming from. So early on, back early August, I was hearing a noise from my backyard that anywhere outside my house, it sounded like a leaf blower. I went on vacation and, you know, came back and it was still there and seemed like it was getting louder. Just standing at my back door, going to step outside. I started reaching out to a local Facebook group, neighborhood watch page, kind of asking and that led me to asking the mayor and it was, hey, you know, noise will be better next week. Well, noise just never got better. In fact, it got worse, much, much worse. 9:30 on November 25th, January 25th, April 18th, June 14th, 10:15 a.m. I mean, it's 24/7 at night. Sometimes it's louder and I hear it inside my house. [00:18:44] Speaker 2: Haley is a part of a class action lawsuit filed against SpaceX days after it went public that claims Musk's companies failed to curb the disturbance and created a public nuisance through excessive and [00:18:55] Speaker 12: offensive noise. And I've been here since 1992. And it reacquired nice everything. All of a sudden, and they sit this building up over here and we've got nothing but chaos, noise, noise, noise. We can't even rest at your house at night and in the daytime. You come out in the morning, you got noise. You go to [00:19:18] Speaker 2: bed at night, you got noise. Amos Jackson lives right by Colossus 2, down the street from Thornton. [00:19:25] Speaker 1: I care less about what AI doing because that's artificial intelligence is not important to me, but I know this noise has got to go. He's going to have to do something, build a wall or something. He's going to have to take this noise up out of here because I can't rest. I can't sell my property. Only thing I can do is endure. To me, it's just like a form of torture. The noise is always there. [00:19:47] Speaker 2: Elon Musk has admitted the difficulties of securing power for his data centers, which has led him to promoting orbital data centers. [00:19:54] Speaker 13: It's increasingly difficult to build power plants on the ground. There are very few people who want a power plant in their backyard. So if we want to say double the electricity usage of the United States, which is on average about 500 gigawatts, we would have to build about twice as many power plants. Most communities are not super excited about that. But actually, if we go to space, we can go far beyond [00:20:23] Speaker 8: the electricity generation of Earth. The legacy air pollution issue in South Memphis and Boxtown, which has been going on for decades now, the Memphis Aquifer is a similar legacy pollution situation to where there's been concerns for that. And any new construction, any new business, any new basic pool on that is going to cause strain on the aquifer, especially with data centers and hyperscale data [00:20:52] Speaker 2: centers, the amount of water they need. XAI Colossus One alone can use 1.28 million gallons of water per day and does not currently recycle the water used. What benefits to the community were touted when the program was announced in the first place? The main thing was the gray water plant, the Colossus [00:21:10] Speaker 8: water recycling plant. Memphis has needed that for some time. XAI did break ground on a wastewater [00:21:17] Speaker 2: recycling plant right by Colossus One in October 2025. The nearby TVA power plant has also agreed to treat water at the facility. But in April 2026, Elon Musk said XAI was going to focus on finishing Colossus Two before building the water recycling plant and construction paused. So we're here outside the wastewater recycling plant that XAI has promised the city of Memphis. It appears there is no construction going on at the moment. The project has been put on pause and it's unclear when they will resume construction. Shortly after our visit there, Memphis Mayor Young put out a statement that said XAI had agreed to resume construction on the recycled wastewater facility no later than Q1 2027. But there are concerns that there is not a proper contractual agreement in place to ensure it gets done in a timely manner. [00:22:08] Speaker 14: We're not waiting around for Colossus Two to be built. We need Colossus One off the aquifer as soon [00:22:14] Speaker 8: as possible. I don't recall ever working on a story that has moved this fast this consistently. It doesn't feel like it's stopped from since when the announcement happened. It is a tough thing to track and follow. If I was a resident, I don't know if you'd know really where to look. You have so many different folks in leadership than to either deflect and blame or not wanting to talk about it too, which leads to problems. [00:22:41] Speaker 2: And criticism is growing against hyperscalers. [00:22:45] Speaker 15: We can't eat money. We can't drink it. [00:22:50] Speaker 2: One Gallup survey this year found seven in ten Americans oppose constructing data centers for AI in their local area. Nearly half, 48 percent, are strongly opposed, with only 7 percent strongly in favor. [00:23:02] Speaker 9: I was talking with one of my neighbors who's pro-XAI. Yeah, I've yet to meet someone. So that's because they are scared to speak on camera. They're afraid to speak on camera. So which make me question really the validity of their true support. And it's not that I'm totally against XAI, but I don't want them in my neighborhood, close to the schools, and I don't want it affecting my health and my grandchildren's health. [00:23:29] Speaker 2: We spoke with one man who did not want to go on camera that said he didn't mind the noise, and also that he would be interested in selling his property to XAI. Everyone else we spoke with was irritated with how XAI handled the data center rollout in the area. [00:23:43] Speaker 11: It has really been a slap in the face. We've been disrespected in this community. [00:23:49] Speaker 2: All around the country, data centers are being scaled back or canceled due to opposition and concerns about pollution and electricity and water rates. [00:23:58] Speaker 15: When data centers moved from a thing that got built on the grid sometimes to this hyperscale era that we're in now, where overnight we're seeing data centers permitted that are the electricity load of an entire city dropped into an electricity grid overnight. We immediately saw price spikes from that in grids across the country. Electricity prices in Virginia have gone up 200 percent in the last two years. The people of Pennsylvania have paid $492 million in upgrades to the electricity grid that went to support data centers. Data centers should be paying for that instead. That's why we're looking at it. Have your energy prices changed? [00:24:37] Speaker 1: Our law, water and everything. Everybody complained about that bill yesterday. Utility bills went up [00:24:45] Speaker 2: significantly. Testimonies from Memphis have inspired policy proposals from lawmakers around the country. Most recently, Massachusetts Senator Edward Markey's AI accountability agenda. New York just became the first state to impose a data center moratorium. And New Jersey has enacted a bill to ensure large data centers pay their fair share for electricity. And communities near Memphis are updating regulations to deal with AI data centers. In Olive Branch, nearby community here, their planning [00:25:13] Speaker 8: commission, you know, public meeting called out Memphis and South Haven basically said we're trying to get ahead of this and put up zoning laws in place. How they saw it was that Memphis and South Haven and their zoning code, it was storage warehouses basically allowed for data centers, including hyperscale data centers. That got extended then to basic data storage. And they saw that then as a need to change and update their zoning laws. Jackson, Mississippi has put some parameters in place as well, but that came directly from what [00:25:38] Speaker 15: happened in Memphis. A bill that's moving through the Illinois legislature right now called the Power Act, that Governor Pritzker is very involved with, is a great model piece of legislation for how you can actually bring costs down and also bring pollution down. The governor of Ohio just announced that they're ceasing all tax breaks for data centers after they blew a hole in the budget. [00:26:00] Speaker 2: What lessons learned or best practices would you like to share with other cities and state officials as [00:26:07] Speaker 10: hyperscaler data centers are built nationwide? I think the two things that we know data centers do is they use a lot of power and they can consume a lot of water. So you want to put protections around your power consumption. You want them to enter into demand response like programs when you have peak power moments that they're agreeing to curtail their usage. And then when it comes to water, you want them to use closed loop systems if possible and make sure that they're they're paying you for the water and not [00:26:38] Speaker 11: drilling wells in your community. We have called for there to be more transparency. We've demanded there be hearings. [00:26:48] Speaker 9: Find an outline area to place them versus closer to residential areas. In addition to that, don't give them any tax breaks because they can certainly afford whatever they're building and doing. I've heard [00:27:00] Speaker 11: some companies say things like we should go to a place where there's already, you know, industrial build-out. If there's already industrial build-out, that likely is a place that's been a sacrifice zone. So you are literally just deepening the sacrifice zones that many of these community members have been [00:27:18] Speaker 2: fighting to get out of for so long. The NAACP released a guide for communities in January on how to protect themselves from dirty data, as well as a framework for tech companies to follow to avoid the challenges [00:27:31] Speaker 11: that have come up in Memphis. It was the first national set of data center principles that we put out last year. It really highlights from a community-informed perspective what it is that communities are concerned about. Starting there, we'll get companies a lot further. Folks all across the country are learning from [00:27:52] Speaker 3: what Memphians have continued to do with raising their voices, with organizing, with protesting. And what they have learned is that if you are able to move proactively, hold your elected officials accountable and you can win. The wins that we have seen in Arizona, the wins that we have seen in South Carolina, the wins that we have seen in Georgia are all because of what has happened in Memphis. And it is our job to make sure that Memphis isn't a cautionary tale, but Memphis is also an example of how people power can translate into legislation that protects us. [00:28:32] Speaker 1: -This is disrespect. Completely disrespect. You don't care about snapping in the middle of a neighborhood. Come on now.