Updated on December 25th at 12:21pm Pacific: Added details on xAI evaluation and Kingdom Holdings' contribution.
Elon Musk's AI company xAI has raised $6 billion in a Series C funding round.
The company announced this week that Andreessen Horowitz, Blackrock, Fidelity, Lightspeed, MGX, Morgan Stanley, OIA, QIA, Sequoia Capital, Valor Equity Partners, Vy Capital, Nvidia, AMD and others have joined.
Saudi conglomerate holding company Kingdom Holdings invested about $400 million in the round, according to public documents. The filing also revealed that xAI's current valuation is $45 billion, nearly double its previous valuation.
The new cash brings xAI's total funding to $12 billion and adds to the $6 billion tranche xAI raised in May.
According to the Financial Times, only investors who backed xAI in the previous funding round were allowed to participate in the latest funding round. Investors who helped finance Musk's acquisition of Twitter were reportedly given access to up to 25% of xAI stock.
“xAI's most powerful model to date…is currently in training, and we are now focused on launching innovative new consumer and enterprise products,” xAI said in a statement. “The funds raised in this funding round will be used to further accelerate our advanced infrastructure, ship breakthrough products, and accelerate research and development.”
AI enhancement
Musk founded xAI last year. Soon after, the company released Grok, its flagship generative AI model. It powers many features of X, including a chatbot that is currently accessible to X Premium subscribers and free users in some regions.
Grok has what Musk described as a “rebellious personality,” one that is willing to answer “tough questions that most other AI systems would refuse.” For example, if you're called vulgar, Grok will gladly go along with it, spouting profanity and colorful language that you won't hear on ChatGPT.
Musk claims that ChatGPT and other AI systems are too “woke” and “political”, even though Grok himself doesn't want to cross certain lines or avoid political subjects. “That's right,” he said mockingly. He also says that Grok is “truth-oriented to the fullest” and less biased than competing models, although there is also evidence to suggest that Grok leans to the left.
Over the past year, Grok has increasingly penetrated X, the social network formerly known as Twitter. At its launch, Grok was only available to X users and developers skilled enough to get the “open source” edition up and running.
Thanks to integration with xAI's in-house image generation model Aurora, Grok can generate images on X (controversially without guardrails). This model can also analyze images and summarize news and trending events, but unfortunately it is incomplete.
According to the report, Grok may handle more X features in the future, from enhanced X search capabilities and account history to post analysis and help with reply settings. X recently introduced the “Grok Button”, which is designed to help users discover “relevant context” and dig deeper into trending discussions and real-time events.
xAI is doing everything it can to catch up with strong competitors like OpenAI and Anthropic in the generative AI race. The company released an API in October to allow customers to incorporate Grok into third-party apps, platforms, and services. I just rolled out a standalone Grok iOS app to my test audience.
Musk insists it wasn't a fair fight.
In a lawsuit filed against OpenAI and Microsoft, a close collaborator of OpenAI, Musk's lawyers claim that OpenAI “extracted commitments from investors not to provide funding” to “We are actively trying to eliminate our competitors,” he said. Musk's lawyers say OpenAI is also profiting from Microsoft's infrastructure and expertise in what the lawyers call a “de facto merger.”
Still, Musk often says that X's data gives xAI an advantage over its rivals. Last month, X changed its privacy policy to allow third parties, including xAI, to train models on X's posts.
Musk, it's worth noting, was one of OpenAI's original founders and left the company in 2018 following disagreements over its direction. In previous lawsuits, he alleged that OpenAI profited from his early involvement but violated its nonprofit pledge to make the results of AI research available to all. I've done it.
Unsurprisingly, OpenAI disagrees with Musk's interpretation of events. In a mid-December press release, the company characterized Musk's lawsuit as misleading, baseless and a sour grapes lawsuit.
xAI ecosystem
xAI outlines a vision for training models on data from Musk's various companies, including Tesla and SpaceX, and that the models improve technology across those companies. xAI is already enhancing customer support for SpaceX's Starlink internet service, and the startup is in talks with Tesla to provide research and development in exchange for a portion of the automaker's revenue, according to the Wall Street Journal. It is said that it does.
One Tesla shareholder opposes these plans. Some have sued Musk over his decision to launch xAI, accusing him of diverting both talent and resources from Tesla to what is essentially a competing business.
Nevertheless, this deal and xAI's developer and consumer products brought xAI's revenue to around $100 million annually. For comparison, Anthropic is on pace to generate $1 billion in revenue this year, and OpenAI is reportedly targeting $4 billion by the end of 2024.
Musk said this summer that xAI is training the next generation of Grok models in its Memphis data center. The data center was apparently built in just 122 days and is currently partially powered by portable diesel generators. The company hopes to upgrade its server farm with 100,000 Nvidia GPUs next year. xAI said in a press release that it plans to fully double that number. (GPUs are the preferred chip for training and running models because they can perform many calculations in parallel.)
In November, xAI won approval for 150MW of additional power from the Memphis Regional Power Authority. This is enough to power approximately 100,000 homes. To convince the agency, xAI promised to improve the quality of the city's drinking water and provide discounted Tesla batteries to Memphis' power grid. But some residents criticized the move, saying it would strain the power grid and worsen local air quality.
Tesla is also expected to use the upgraded data center to improve its self-driving technology.
xAI has expanded very rapidly from an operational standpoint in the year since its founding, going from just 12 employees in March 2023 to over 100 employees today. In October, the startup moved into OpenAI's old offices in San Francisco's Mission District.
xAI reportedly told investors that it plans to raise more money next year.
This is not the only AI lab attracting huge amounts of funding. Anthropic recently secured $4 billion from Amazon, bringing its total funding to $13.7 billion, while OpenAI raised $6.6 billion in October, increasing its war chest to $17.9 billion.
Mega deals like OpenAI and Anthropic drove AI venture capital activity to $31.1 billion in more than 2,000 deals in Q3 2024, according to PitchBook data.
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