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Elon Musk’s xAI Receives Higher Than Expected Valuation After Investors Pour In – OpenAI Rivalry Heats Up

Last Updated May 27, 2024 12:35 PM
Giuseppe Ciccomascolo
Last Updated May 27, 2024 12:35 PM
Key Takeaways
  • Elon Musk’s xAI secured a significant $6 billion investment, propelling its valuation to $24 billion.
  • The funding will likely fuel further development of Grok, xAI’s AI chatbot, potentially expanding beyond the X platform.
  • The funding likely intensifies competition between xAI and OpenAI, with Musk hinting at further announcements soon.

Elon Musk’s artificial intelligence (AI) firm, xAI, has secured an additional $6 billion  in funding from investors, including prominent Silicon Valley venture capitalists and a Saudi prince, elevating its valuation to $24 billion.

Musk hinted at further investments , stating there will be “more to announce in the coming weeks.” This funding round may help position xAI in the intense competition with OpenAI for AI supremacy.

Higher Than Expected Valuation

Elon Musk’s AI startup, xAI, has raised $6 billion and marked one of the largest investments in the burgeoning AI sector. This influx of capital positions xAI to aggressively compete with rivals like OpenAI, Microsoft, and Google.

xAI announced  that the new funding will bring the company’s first products to market, build advanced infrastructure, and accelerate research and development of future technologies.

This funding round establishes xAI as a formidable contender to OpenAI, the AI research organization behind the widely popular chatbot ChatGPT. Musk, a co-founder of OpenAI, stepped down as chairman six years ago due to disagreements about the company’s direction.

In November 2023, xAI revealed it was developing an AI-powered chatbot called “Grok” for select paying users of X, the social media platform formerly known as Twitter, which Musk also owns. Musk said that Grok was being trained using real-time access to information on X.

Since then, xAI has released versions of Grok 1.5 with enhanced long-context and image capabilities. The company actively recruits engineers and researchers in Palo Alto, San Francisco, and London.

Who Invested in xAI

Valor Equity Partners, Vy Capital, Andreessen Horowitz, Sequoia Capital, Fidelity, Prince Alwaleed Bin Talal, and Kingdom Holding are among the investors who participated in xAI’s Series B funding round.

Elon Musk has publicly diverged from OpenAI, indicating a competitive rivalry. The anticipated future funding round, which may also include Sequoia Capital, could further intensify the AI competition.

Bloomberg previously reported  that xAI initially aimed to raise between $3 billion and $4 billion. However growing investor interest in AI has pushed the total beyond the higher end of that range.

According to Crunchbase , investment in AI-related startups rose in the first quarter of 2024 compared to the fourth quarter of 2023. The initial three months of 2024 saw $12.2 billion invested in 1,166 deals involving venture-backed AI startups, a 4% increase from the $11.7 billion invested in Q4 2023.

xAI’s pitch to investors also capitalizes on Musk’s entrepreneurial successes with Tesla Inc. and SpaceX.

Meanwhile, other AI businesses are also securing significant funding. Myelin Foundry raised $4 million for their AI platforms and global expansion. Atlan secured $105 million in a round led by Singapore’s sovereign wealth fund GIC, reaching a valuation of $750 million. Additionally, UK-based Wayve raised $1 billion in Europe’s largest-ever AI funding round, focusing on developing AI for autonomous vehicles.

Next Steps

The company plans to use the newly raised funds to bring its first products to market, build advanced infrastructure, and accelerate the development of future technologies.

The company is also likely to seek partnerships to expand the reach of its AI chatbot, Grok, beyond the X platform.

Elon Musk, who founded xAI in July last year, announced on X that there would be “more to announce in the coming weeks.” He also noted that the startup’s valuation was $18 billion before the latest funding.

xAI plans  to create a supercomputer utilizing up to 100,000 Nvidia H100 GPUs based on the Hopper architecture. This would make it at least four times larger than existing GPU clusters. Despite the high demand and limited availability of Nvidia’s H100 GPUs, they are highly coveted in the AI data center chip market.

The decision to use the earlier generation H100 GPUs, rather than Nvidia’s upcoming Blackwell-based B100 and B200 GPUs, remains unclear. Nevertheless, this substantial hardware investment underscores xAI’s ambitions in developing advanced language models.

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