Elon Musk has spent the past year rapidly building his artificial intelligence startup, xAI, but now the challenge is to turn it into a sustainable business.
Musk launched xAI last summer in an attempt to catch up with OpenAI, the ChatGPT developer he co-founded and left in 2018 after a power struggle. To expedite the progress, Musk recruited talent from across the tech industry and pushed contractors to build a huge new data center in an ambitious time frame: just a few months, an almost unheard of time for a project of that scale. Musk is now promising that the Memphis (Tenn.) facility will eventually help xAI build the world’s most powerful AI “by any measure” by December.
Investors support Musk’s vision, or at least his proven track record of success. As a matter of fact, xAI has raised at least $11 billion and increased its valuation to $50 billion in a recent funding round, making it the second most valuable private AI developer after OpenAI.
However, as a money-making venture, xAI is still far behind. The startup told investors that its revenue is on track to exceed $100 million a year, while OpenAI is expected to make nearly $4 billion in revenue this year.
The majority of xAI’s revenue has come from Musk’s broader network of companies. Its primary product, the Grok chatbot, is exclusively available to subscribers of his social media platform X. Additionally, xAI is providing customer support solutions for SpaceX’s Starlink internet service, according to sources familiar with the matter. The startup is also expected to contribute to the development of new AI-driven features for X’s search engine, one of the sources added.
xAI has explored a potential deal with Tesla, where the startup would receive a share of Tesla’s revenue in exchange for providing the carmaker access to its technology and resources.
However, xAI is now focusing on establishing itself independently. In fact, earlier this month, it launched a paid tool for developers to create products using Grok, offering discounts as an incentive. The startup also plans to roll out a stand-alone consumer app next month, similar to ChatGPT, according to sources familiar with the plans.
But still, xAI faces an uphill battle in an already crowded market. Competitors like OpenAI, Alphabet’s Google, Meta Platforms, and Anthropic have long-established, widely available chatbots that have been accessible to consumers and businesses since at least last year.
In its presentations to potential employees and investors, Musk’s team highlighted two key advantages in the race to develop the most powerful AI. First, he emphasized the unique data from X and Tesla used to train xAI models. Second, it focuses on intensive efforts to build bigger data centers faster than competitors.
The Memphis, Tenn. facility, also known as Colossus, was built in just 122 days and is equipped with 100,000 Nvidia graphics processing units (GPUs), making it one of the largest AI chip clusters in the world.
xAI informed investors that part of the $5 billion raised in this month’s funding round will be used to double the number of GPUs in Colossus, with plans to raise additional funds next year, according to sources familiar with the matter.
