Elon Musk’s xAI in talks to raise funding valuing it at $40 billion

xAI has shared resources with Elon Musk’s other businesses. (Reuters)
xAI has shared resources with Elon Musk’s other businesses. (Reuters)

Summary

The new fundraising effort would substantially increase startup’s valuation from spring.

Elon Musk’s xAI is in talks with investors for a funding round that would value it around $40 billion, according to people familiar with the matter.

The startup was last valued at $24 billion just a few months ago, when it raised $6 billion in the spring.

xAI hopes to raise several billion dollars in the new funding round, one of the knowledgeable people said. The cash raised would be added to the $40 billion valuation.

The funding discussions are in the early stages, meaning that terms could change or the talks could fall apart.

Representatives for xAI didn’t respond to requests for comment.

Silicon Valley’s biggest AI startups are raising cash at breakneck speed to fund the intensive computing power needed to develop and run their technology. Earlier this month, OpenAI raised $6.6 billion at a $157 billion valuation in what was one of the largest private funding rounds in U.S. history. Perplexity, an AI search startup, is in talks to raise new funding that would more than double its valuation to $8 billion, The Wall Street Journal recently reported.

They are competing not just with each other, but with huge public companies like Google and Meta Platforms that are pouring profits from their existing businesses into AI.

Musk founded xAI a year and a half ago, but has a longstanding interest in the technology. He co-founded OpenAI in 2015, left in 2018, and sued the ChatGPT maker twice this year.

xAI has built what it says is the world’s largest data center in Memphis, Tenn., where it is training new versions of its AI model called Grok. The models power a chatbot that is currently only available through Musk’s social-media company X.

Last week, xAI released a tool that developers can use to build applications with Grok, broadening its revenue sources.

In August, xAI added the ability for Grok to generate images. The feature, which is powered by an outside startup called Black Forest Labs, immediately drew backlash for generating images such as Donald Trump and Kamala Harris kissing. Image generators from OpenAI and Google don’t allow users to generate images of real, specific people.

Musk said Monday that xAI is planning to grow the Memphis data center from 100,000 graphic processing units, or GPUs, to 200,000. Nvidia CEO Jensen Huang has praised the speed in which xAI built its Memphis data center, which he described in a recent podcast as “easily the fastest supercomputer on the planet."

xAI has shared resources with Musk’s other businesses, raising concerns about potential conflicts of interest. The startup hired multiple employees from Tesla, and Musk has also diverted thousands of Nvidia GPUs from Tesla to xAI. xAI relies on data from X to train its AI models. It has also discussed a deal where it would get some Tesla revenue in exchange for providing the carmaker access to its technology, The Wall Street Journal reported.

Tom Dotan contributed to this article.

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