Elon Musk's xAI has been making significant waves in the AI landscape. With a recent $6 billion raise and a total of $12 billion raised so far, this company is on a trajectory of rapid growth. Let's explore its various aspects and how it's competing in the generative AI race.

Unraveling the Mysteries of xAI's AI Empire

Funding and Investors

According to a filing with the U.S. Securities and Exchange Commission on Thursday, Elon Musk's xAI has raised a substantial $6 billion. Investors have contributed a minimum of $77,593 each. A total of 97 participants took part, but their identities remain undisclosed. The Wall Street Journal had previously reported that Valor Equity Partners, Sequoia Capital, Andreessen Horowitz, Qatar Investment Authority, and Qatar's sovereign-wealth fund were expected to contribute. This new cash infusion adds to the $6 billion raised in the spring. CNBC reported in November that xAI was aiming for a $50 billion valuation, double its value six months ago. Only investors who backed xAI in its previous fundraising round were permitted to participate in this one. It's interesting to note that investors who financed Musk's Twitter acquisition were given access to up to 25% of xAI's shares.

Ramping up AI

Musk formed xAI last year. Shortly after, the company released Grok, a flagship generative AI model. Grok now powers several features on X, including a chatbot available to X Premium subscribers and some free users. Grok has what Musk describes as a "rebellious streak," being willing to answer "spicy questions" that other AI systems reject. For example, when asked to be vulgar, Grok will provide profanities and colorful language that you won't hear from ChatGPT. However, Musk has also derided ChatGPT and other AI systems for being too "woke" and "politically correct," despite Grok's own boundaries. He refers to Grok as "maximally truth-seeking" and less biased than competing models, although there is evidence suggesting it leans to the left.Over the past year, Grok has become deeply integrated into X. At launch, it was only available to X users and developers skilled enough to get the "open source" edition running. Thanks to an integration with the open image generator Flux, Grok can generate images on X (controversially without guardrails). The model can also analyze images and summarize news and trending events, although not perfectly. Reports indicate that Grok may handle even more X functions in the future, such as enhancing X's search capabilities, account bios, and helping with post analytics and reply settings.

Competing in the AI Race

xAI is sprinting to catch up to formidable competitors like OpenAI and Anthropic. The company launched an API in October, allowing customers to build Grok into third-party apps, platforms, and services. The Wall Street Journal reported that xAI is preparing to release a standalone consumer app similar to OpenAI's in December. Musk asserts that it hasn't been a fair fight. In a lawsuit against OpenAI and Microsoft, his attorneys accuse OpenAI of "actively trying to eliminate competitors" like xAI by "extracting promises from investors not to fund them." OpenAI also benefits unfairly from Microsoft's infrastructure and expertise in what the attorneys describe as a "de facto merger."Yet Musk often says that X's data gives xAI a leg up compared to rivals. Last month, X changed its privacy policy to allow third parties, including xAI, to train models on X posts.

The xAI Ecosystem

xAI has outlined a vision where its models would be trained on data from Musk's various companies like Tesla and SpaceX, and then improve technology across those companies. The Wall Street Journal reports that it is already powering customer support features for SpaceX's Starlink internet service, and the startup is in talks with Tesla to provide R&D in exchange for some of the carmaker's revenue.However, Tesla shareholders object to these plans. Several have sued Musk over his decision to start xAI, arguing that he has diverted talent and resources from Tesla to a competing venture. Nevertheless, the deals and xAI's developer and consumer-facing products have driven its revenue to around $100 million a year. For comparison, Anthropic is reportedly on pace to generate $1 billion in revenue this year, and OpenAI is targeting $4 billion by the end of 2024.Musk said this summer that xAI is training the next generation of Grok models at its Memphis data center, built in just 122 days and currently powered partly by portable diesel generators. The company hopes to upgrade the server farm, which contains 100,000 Nvidia GPUs, next year. In November, xAI won approval from the regional power authority in Memphis for 150MW of additional power, enough to power roughly 100,000 homes. To win the agency over, xAI pledged to improve the quality of the city's drinking water and provide discounted Tesla-manufactured batteries. But some residents criticized the move, arguing it would strain the grid and worsen the area's air quality. Tesla is also expected to use the upgraded data center to improve its autonomous driving technologies.xAI has expanded rapidly from an operations standpoint. From just a dozen employees in March 2023, it now has over 100 employees. In October, the startup moved into OpenAI's old corporate offices in San Francisco's Mission neighborhood. xAI has reportedly told investors it plans to raise more money next year.It won't be the only AI lab raising immense cash. Anthropic recently secured $4 billion from Amazon, bringing its total raised to $13.7 billion, while OpenAI raised $6.6 billion in October to grow its warchest to $17.9 billion. Megadeals like these have driven AI venture capital activity to $31.1 billion across over 2,000 deals in Q3 2024, according to Pitchbook data.