X Secures $6 Billion in Funding for its AI Projects

I’m not exactly sure what the true bet is here, but it’s Elon Musk, and I suspect a lot of venture capital firms are just too scared to miss out, in case he is able to back up his many promises.

Or they just believe in his vision.

Either way, xAI, the team building X’s Grok AI chatbot, and other elements within Musk’s family of businesses, has apparently secured almost $6 billion in additional funding from a variety of sources, including Lightspeed Venture Partners, Andreessen Horowitz, Sequoia Capital and Tribe Capital.

The new funding round sees xAI now valued at around $18 billion.

As reported by The Financial Times:

“The funding deal comes as Musk seeks to secure the financial firepower to catch-up with market leaders OpenAI, Anthropic and Google, all of which have released more powerful generative AI models than xAI. His pitch to investors is that xAI can gain ground thanks to its connection to the other companies he leads, which could provide technology, data and early revenue as customers of the start-up.”

So it’s considered a positive that Musk’s other companies can make deals with xAI, as it would theoretically give it more value. Which seems kind of reductive, but apparently, there’s significant optimism that Musk and Co. will be able to build AI systems that are able to compete with the emerging big players in the space.

Which, really, is increasingly becoming a space in which only the biggest of players are going to have any chance.

Amid an expanding range of AI regulations and safety pledges, and a new world of data sourcing deals, the cost of developing large language models (LLMs), and their subsequent AI systems, is rising more and more. And that’s before you also factor in the price of the GPUs and other hardware considerations that are needed to power such processes in the first place.

Indeed, Meta CEO Mark Zuckerberg recently noted that his company will spend an additional $5 billion on AI development in 2024, on top of the $35 billion that it already has earmarked for its AI and VR developments. Part of that will see Meta purchasing more than 350,000 additional Nvidia H100 GPUs, which have become such a hot commodity, that even fulfilling the orders from Silicon Valley has become a challenge.

Meta reportedly now has around 500,000 GPUs in operation, and is aiming to up that to a million in the near future.

Google’s also secured new partnerships with Nvidia on its latest GPU models, while OpenAI, with partner Microsoft, says that it’s aiming to get around 10 million GPUs into production to power its next-level AI models (though it’s also, reportedly, looking to develop its own systems to replace its Nvidia systems).

By comparison, xAI is aiming far lower.

xAI is believed to currently be operating around 30,000 H100 GPUs, though Musk and Co. are also looking to utilize the resources of Tesla, which has anywhere up to an additional 300,000 or so GPUs in operation.

Which is obviously significant, but it’s still a long way off the resources of the big three, and it’s hard to see, without significant additional spend, how xAI even begins to compete in this respect.

Musk himself has acknowledged this, noting that:

“The stakes for being competitive in AI are at least several billion dollars per year at this point.”

So xAI is really up against it, and if it can’t pull off something big, it runs the risk of losing out to the larger platforms either way, which are already becoming synonymous with AI products.

Elon’s big hope is that X’s Grok AI chatbot will catch on, with its “maximally truth-seeking AI” ideally holding more appeal than the competition.

But I just don’t see it. Grok, which X is now using to generate news headlines, is regularly wrong, regularly misinterprets subjects, based on X posts, and doesn’t really provide much enhancement on the platform.

And it’s only available to X Premium users either way, who currently make up less than 1% of X’s total user base.

So why xAI would be valued at $18 billion, I’m not sure, but maybe, with the combined insight from Tesla’s systems, and the potential for Elon and Co. to come up with something truly unique, maybe there’s something there?

Seems like a big “maybe”, but either way, Elon has once again been able to secure funding, which will ideally see Grok become a more responsive, and hopefully accurate, AI bot tool.

Which could also help X, if it does become a more popular function, and get more people using the app, and signing up to X Premium to use it. So the fates of xAI and X are intertwined, which ostensibly means that this funding is going towards the X project.

Which really needs it. X’s ad revenue is reportedly still down by around 50% on pre-Elon levels, and X Premium take-up, as noted, remains low.

Maybe, then, this additional funding will help X stay in operation, because at 50% lower revenue intake, it’s currently still on a path to bankruptcy in the near future.

But if Grok gets better, and more people sign-up, maybe, X’s fate will also shift.

It’s a lot of reliance on a questionable AI project, based purely on compute comparison. But that, apparently, is the thinking at play.