xAI: Elon Musk’s OpenAI Competitor Nears $6B in Funding with X Corp as Shareholder

Elon Musk's xAI, a relatively new contender in the artificial intelligence landscape, is seeking to raise $6 billion at a pre-money valuation of $18 billion, as reported by a reliable source familiar with the negotiations. This investment round, which would offer investors a 25% share in the company, is projected to close within weeks, contingent on maintaining current terms.

The terms have already shifted. Just last weekend, Jared Birchall, who leads Musk's family office, informed potential investors that xAI was initially raising $3 billion at a $15 billion pre-money valuation. Given the overwhelming interest from investors, these figures were quickly adjusted.

According to our source, "We received an email that stated, 'It’s now $6B at $18B, and don’t complain because many others want in.'"

Despite the rise in investment requirements, eager investors welcomed the change. Sequoia Capital and Future Ventures, co-founded by Musk's long-time friend Steve Jurvetson, are involved in this funding round. Other expected participants include Valor Equity Partners and Gigafund, both connected to Musk's tight-knit network. (Attempts to reach these investors for comment were unsuccessful; xAI does not have a press office.)

Jurvetson has served on the board of SpaceX and was a director at Tesla until 2020. Luke Nosek, co-founder of Gigafund and a former Founders Fund partner with Peter Thiel, was the first venture investor to write a check for SpaceX, where he has been a board member since its inception. Meanwhile, Antonio Gracias, founder of Valor and an early investor in Tesla, shares a similar background; like Jurvetson, he was a former director at Tesla and sits on the board of SpaceX.

Our source indicated that the details regarding other investors remain somewhat murky due to the informal commitment process. “It’s just a Zoom call with you, Elon, and Jared at the table with some engineers,” they shared.

The pitch, according to this insider, is compelling.

xAI's promotional material defines its mission to bridge the digital and physical realms. However, it may not be widely recognized that Musk intends to leverage training data from his various ventures—Tesla, SpaceX, Neuralink, and the tunneling company Boring Company—to achieve this goal.

Importantly, Musk also owns X, the social media platform that has integrated xAI's early-stage chatbot, Grok, as a paid feature. This represents just one element of the expansive vision Musk has shared with investors, envisioning a comprehensive virtual ecosystem.

Grok's integration means that X not only serves as a customer but also provides significant distribution for the chatbot. The plan is for Grok to eventually access data from Musk's other enterprises, enhancing its ability to navigate the physical world, beginning with fully autonomous vehicles.

Another potential beneficiary could be Tesla's humanoid robot, Optimus. Although Optimus remains in the experimental phase, Musk recently asserted that it would be capable of performing tasks in Tesla factories by the year’s end. Even if this timeline is optimistic, these advanced assistants could exceed current expectations if Musk’s grand vision materializes.

For now, the most immediate advantage of xAI's success may be for X itself. Despite its decline in value and reputation since Musk's acquisition, he has ensured that X holds a stake in xAI, allowing it to benefit from the AI company’s growth.

The implications for OpenAI, which made headlines as the fastest-growing startup last year, remain uncertain. Musk has long cast a wary eye on OpenAI in response to its rapid ascent following the launch of its ChatGPT chatbot.

After co-founding OpenAI in 2015, Musk stepped down from its board in 2018 due to differences over its strategy. Following this, he has openly criticized OpenAI co-founder Sam Altman and mocked the brand, suggesting it rebrand to "ClosedAI."

Last month, Musk took a significant step by open-sourcing the architectural framework of xAI's initial chatbot, "Grok-1," enabling public access for modification and learning. This move further emphasizes Musk's commitment to differentiating xAI's approach from OpenAI’s more secretive operations, which Musk is currently challenging in court.