Elon Musk’s xAI raises $6bn in bid to challenge OpenAI

Elon Musk’s artificial intelligence start-up xAI has closed a $6 billion (€5.5 billion) funding round at a valuation of $18 billion, as investor fervour for new challengers to OpenAI continues unabated.

Despite being little more than a year old, xAI’s financing vaults it into the richest tier of potential rivals to Microsoft-backed OpenAI, the company behind ChatGPT, which has secured more than $13 billion in funding. Measured by capital raised, xAI now ranks alongside Anthropic, which has raised more than $8 billion since it was established in 2021.

Mr Musk was a co-founder of OpenAI before he split with its chief executive, Sam Altman, in 2018.

Investors in xAI’s new round include many of Mr Musk’s most loyal backers, including Kingdom Holding, the Saudi investor led by Prince Alwaleed Bin Talal, Valor Equity Partners and Dubai-based Vy Capital, as well as Silicon Valley firms Andreessen Horowitz and Sequoia Capital.

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The same investors had previously backed Mr Musk’s $44 billion acquisition of Twitter in 2022. The AI start-up’s chatbot Grok is tightly integrated with Mr Musk’s social media platform, now called X, giving it access to a real-time stream of data and a large audience of potential users.

Assembling the talent and computing power needed to build large AI models comes with a high price tag. Nvidia, the dominant supplier of the chips needed to train AI systems, last week reported a 262 per cent jump in revenue as demand continues to outstrip the supply of its latest processors. The world’s most valuable companies – including Microsoft, Google and Meta – are all racing to expand their AI capabilities and investing billions in the data centre infrastructure needed to build and run them.

Nonetheless, investors still see opportunities for new entrants and alternative approaches to building large-language models, the AI systems that power Grok and ChatGPT. The xAI deal comes as Paris-based Mistral, which was founded a year ago, closes in on a new €500 million round at €5 billion valuation, according to people familiar with the talks.

The deal gives xAI a so-called post-money valuation of $24 billion once the new investment is taken into account.

[ Elon Musk sues OpenAI over ‘benefit to humanity’ concerns ]

The company said it had “made significant strides” in a short time, including adding image capabilities to Grok, which was released in November.

“xAI will continue on this steep trajectory of progress over the coming months, with multiple exciting technology updates and products soon to be announced,” it said in a blog post late on Sunday evening in California. “The funds from the round will be used to take xAI’s first products to market, build advanced infrastructure, and accelerate the research and development of future technologies.”

It added: “The company’s mission is to understand the true nature of the universe.”

Mr Musk has pitched Grok as a “maximum truth-seeking” alternative to what he has sought to portray as “politically correct” rivals ChatGPT and Google’s Gemini. During its fundraising, backers of Mr Musk’s other ventures, including X and SpaceX, were given first refusal to back xAI, people familiar with the talks told the Financial Times last week. Investors who had raised questions about issues at Mr Musk’s other ventures had been frozen out of the xAI funding round, according to one person who participated.

The Financial Times first reported in January that xAI was in talks to raise as much as $6 billion. At the time, Mr Musk said in a post on X: “xAI is not raising capital and I have had no conversations with anyone in this regard.”

– Copyright The Financial Times Limited 2024