Elon Musk’s xAI is currently engaged in discussions with investors regarding a funding round that could place its valuation at approximately $40 billion, according to sources familiar with the negotiations. This development underscores the escalating competition within the tech sector to develop sophisticated generative AI technology.
Just a few months ago, xAI was valued at $24 billion after successfully raising $6 billion in the spring. The startup aims to secure several billion dollars in this upcoming funding round, which would contribute to achieving the anticipated $40 billion valuation. However, it’s important to note that these funding talks are still in their preliminary stages, meaning terms may shift or the discussions could potentially fall through altogether.
xAI representatives have not responded to requests for comment on these discussions.
The pace at which major AI startups in Silicon Valley are raising funds is accelerating as they seek the substantial computing power necessary to develop and operate their technologies. Earlier this month, OpenAI raised an impressive $6.6 billion at a valuation of $157 billion in one of the largest private funding rounds in U.S. history. Additionally, Perplexity, an AI search startup, is reportedly in discussions to raise new funding that could more than double its valuation to $8 billion.
These startups are not only competing with each other but also with massive public corporations like Alphabet, Google’s parent company, and Meta Platforms, both of which are investing significant profits from their existing operations into AI initiatives.
While participating in a video call at a conference in Saudi Arabia, Musk emphasized the substantial computational needs for training advanced models, stating, “If you’re training a frontier model, you need a massive amount of compute.”
Musk founded xAI a year and a half ago, inspired by the rapid success of ChatGPT, with the goal of creating the most “truth-seeking” AI. His fascination with AI is longstanding; he co-founded OpenAI in 2015 but left the organization in 2018 and has since sued the ChatGPT creator twice this year.
xAI claims to have constructed the world’s largest data center in Memphis, Tennessee, where it is actively training new iterations of Grok, its AI model. Grok is the driving force behind a chatbot currently available exclusively through Musk’s social media platform, X.
The scale of a data center significantly impacts the speed at which a company can train its AI models. Musk recently announced plans to expand the Memphis facility from 100,000 to 200,000 graphic processing units (GPUs). Nvidia CEO Jensen Huang has commended the swift development of xAI’s Memphis data center, referring to it as “easily the fastest supercomputer on the planet” in a recent podcast.
Over the past 18 months, xAI has been in a position of catching up with competitors like OpenAI and Google, who had already established themselves in the AI landscape. The company introduced its Grok chatbot merely four months after its inception.
Until recently, xAI’s only publicly recognized source of revenue was the X Premium subscription, which includes access to the Grok chatbot. However, last week, xAI unveiled a new tool enabling developers to create applications utilizing Grok, thus expanding its revenue-generating potential.
To expedite its progress, xAI has leveraged resources from Musk’s other ventures, raising concerns among investors regarding potential conflicts of interest. The startup has recruited staff from Tesla and has redirected thousands of Nvidia GPUs from Tesla to xAI. Additionally, xAI depends on data from X for training its AI models and has explored a potential arrangement where it could receive some Tesla revenue in exchange for providing the automaker with access to its technology, as reported by The Wall Street Journal.
This intermingling of resources has led to legal challenges from Tesla shareholders, who are attempting to prevent Musk from utilizing the electric vehicle company’s resources for his AI startup. Three lawsuits have been filed in the Delaware Court of Chancery and are currently pending.
In a Tesla earnings call last week, Musk acknowledged that xAI “has been helpful to Tesla AI quite a few times in terms of things like scaling up.”
In August, xAI enhanced Grok’s capabilities by allowing it to generate images, a feature supported by an external startup called Black Forest Labs. This addition, however, faced immediate backlash when it produced images depicting public figures like Donald Trump and Kamala Harris in compromising scenarios. In contrast, image generators from competitors such as OpenAI and Google do not permit the generation of images featuring real, specific individuals.
Overall, as xAI continues to navigate its funding efforts and technological developments, its trajectory reflects the broader dynamics and fierce competition within the AI sector, where speed and resource allocation are critical to staying ahead in an evolving landscape.