Elon Musk’s xAI lands $6B in new cash to fuel AI ambitions

xAI has raised $6 billion in a Series C financing round, the company announced this week. Key investors included Andreessen Horowitz, BlackRock, Fidelity, Lightspeed, MGX, Morgan Stanley, OIA, QIA, Sequoia Capital, Valor Equity Partners, Vy Capital, Nvidia, AMD, and others.

Saudi conglomerate Kingdom Holdings contributed around $400 million to the round, as per a public filing. The filing also revealed xAI’s valuation now stands at $45 billion, nearly doubling its previous value.

This latest funding brings xAI’s total capital raised to $12 billion, following a $6 billion round in May. According to the Financial Times, only investors from xAI’s prior fundraising round could participate this time. Notably, backers of Musk’s Twitter acquisition were offered up to 25% of xAI’s shares.

“xAI’s most powerful model yet is currently in training, and we are focused on launching innovative consumer and enterprise products,” the company stated. “This funding will help accelerate infrastructure development, deliver groundbreaking products, and boost R&D.”

Founded by Musk last year, xAI launched Grok, a generative AI model integrated into X (formerly Twitter). Grok powers features like a chatbot for X Premium subscribers and free users in certain regions.

Musk describes Grok as having “a rebellious streak,” willing to answer provocative queries avoided by other AI systems. For example, Grok may use profanity or edgy language that models like ChatGPT avoid. Musk has criticized competing systems for being overly “woke” and “politically correct,” though Grok also avoids certain sensitive topics. Musk touts it as “truth-seeking” and less biased, though some reports suggest a left-leaning tendency.

Over time, Grok has become increasingly embedded within X. It generates images using xAI’s model, Aurora, analyzes visuals, and summarizes news and events—though not always accurately. Future updates might allow Grok to enhance search features, analyze account bios, and improve post analytics on X. A recently added “Grok button” provides users with relevant context on trending discussions.

xAI is striving to compete with AI leaders like OpenAI and Anthropic. In October, xAI launched an API for integrating Grok into external apps and services. It also debuted a standalone Grok iOS app for beta testing.

Musk claims xAI faces unfair competition. A lawsuit against OpenAI and Microsoft accuses them of blocking funding to rivals like xAI and benefiting from Microsoft’s resources in what Musk’s attorneys call a “de facto merger.”

However, Musk believes xAI gains a competitive edge through access to data from X. In September, X’s privacy policy was updated to allow training AI models on user posts.

Interestingly, Musk co-founded OpenAI in 2015 but departed in 2018 due to disagreements over its direction. He has since criticized OpenAI for abandoning its nonprofit mission. OpenAI disputes Musk’s allegations, labeling them as baseless and misinformed.

xAI envisions using data from Musk’s companies, such as Tesla and SpaceX, to enhance its AI models. For example, xAI’s technology supports SpaceX’s Starlink customer service, and discussions are ongoing with Tesla for potential collaborations.

Tesla shareholders have pushed back, alleging that xAI diverts resources and talent away from Tesla. Despite these challenges, xAI has achieved approximately $100 million in annual revenue. For comparison, Anthropic is targeting $1 billion in revenue this year, while OpenAI aims for $4 billion by 2024.

This summer, Musk revealed that xAI is training the next iteration of Grok at a Memphis data center equipped with 100,000 Nvidia GPUs. The facility, constructed in 122 days, runs partly on diesel generators. xAI plans to double its GPU count next year and recently secured approval for 150MW of additional power. To gain support, xAI pledged to enhance Memphis’s water quality and supply discounted Tesla batteries. However, local criticism highlights concerns about grid strain and air quality.

Tesla also plans to leverage the upgraded center to advance its autonomous driving tech.

Since its founding, xAI has grown from 12 employees in March 2023 to over 100 today. It recently relocated to OpenAI’s former headquarters in San Francisco.

Looking ahead, xAI plans another fundraising round next year. The company faces stiff competition as Anthropic recently raised $4 billion from Amazon, reaching $13.7 billion in total funding, while OpenAI secured $6.6 billion, bringing its total to $17.9 billion.

In Q3 2024 alone, AI venture capital investments totaled $31.1 billion across more than 2,000 deals, according to PitchBook.