By Berber Jin and Meghan Bobrowsky
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, escalating the tech industry's race to build advanced generative AI technology.
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 parent Alphabet and Meta Platforms -- that are pouring profits from their existing businesses into AI.
"If you're training a frontier model, you need a massive amount of compute," Musk said while video-calling Tuesday into a conference in Saudi Arabia.
Musk founded xAI a year and a half ago after seeing the overnight success of ChatGPT, saying he wanted to build the most "truth-seeking" AI. The Tesla and SpaceX chief executive 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 Grok, its AI model. Grok powers a chatbot that is currently only available through Musk's social-media company X.
The bigger the data center, the faster a company can train its AI models. Musk said Monday that xAI was 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."
For the last year and a half, xAI has been in catch-up mode, chasing companies such as OpenAI and Google that had a head start in the space. It introduced its Grok chatbot four months after launching the company.
Until last week, its lone publicly known revenue stream was the X Premium subscription, of which the Grok chatbot is a part.
xAI has shared resources with Musk's other businesses to help it catch up, raising concerns from investors about conflicts of interest.
The startup hired 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.
Tesla shareholders have sued to stop Musk from sharing the public electric-vehicle company's resources with his AI startup. Three lawsuits filed in the Delaware Court of Chancery are pending.
Musk said on a Tesla earnings call last week that xAI "has been helpful to Tesla AI quite a few times in terms of things like scaling up."
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.
--Tom Dotan contributed to this article.
Write to Berber Jin at berber.jin@wsj.com and Meghan Bobrowsky at meghan.bobrowsky@wsj.com
(END) Dow Jones Newswires
October 29, 2024 15:34 ET (19:34 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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