SpaceX is investing $2 billion in xAI

SpaceX is investing $2 billion into Elon Musk’s artificial intelligence startup, xAI, almost half of the $5 billion the company just raised through an equity round organized by Morgan Stanley, according to The Wall Street Journal.

This is the rocket company’s first known investment in xAI and one of its biggest investments in any outside company.

Elon has been using his businesses to fuel xAI’s growth since the company launched. Earlier this year, he combined xAI with X, the platform previously known as Twitter.

That merger turned a small AI lab into a larger company that could use the reach of a major social platform to push its products. The newly merged company was valued at $113 billion.

Grok launches new version while xAI faces backlash

Elon has been focusing on training Grok, xAI’s chatbot, which just rolled out its latest version, Grok 4. He called it “the smartest AI in the world” during the launch, after it earned top marks from benchmarking group Artificial Analysis.

But the rollout hasn’t been smooth. Grok made headlines for posting racist and offensive responses to users on X. In a public apology, xAI said, “We deeply apologize for the horrific behavior that many experienced,” and added that the issue had been investigated and actions were taken to address it.

Despite that, Elon is moving forward. During the same launch, he revealed plans to embed Grok into Tesla’s humanoid robots, Optimus. He didn’t give a timeline, but the goal is to make Grok the AI system that runs the robots.

Grok is already being used in one of Elon’s other companies. It powers customer service features for Starlink, the satellite internet service run by SpaceX, as reported by The Wall Street Journal. According to investors who spoke with Elon’s team, more collaborations between SpaceX and xAI are expected.

SpaceX takes on new risks while xAI burns cash

This isn’t the first time Elon has tapped SpaceX to support another company he owns. Years ago, he borrowed $20 million from SpaceX to help fund Tesla. He also used SpaceX equipment to launch The Boring Company.

In 2022, around the time he bought Twitter, he took out a $1 billion loan from SpaceX, which he later repaid. The $2 billion investment comes at a time when SpaceX is already pouring money into the development of its new rocket, Starship.

The project is behind schedule and has hit multiple roadblocks this year, including three failed test flights and an engine test that ended in a major explosion. Still, the company had over $3 billion in cash on hand recently, according to The Wall Street Journal.

SpaceX rarely backs outside companies. One of the few times it did was in 2021, when it bought a satellite communications firm for $524 million. This xAI deal is on a much larger scale, and it ties the rocket firm more deeply into Elon’s AI ambitions, just as the AI industry becomes more competitive and expensive.

xAI is burning through billions to train models, just like other startups in the field. The company raised $5 billion in debt alongside its equity fundraising. One of the investors told the Journal that even more fundraising is expected later this year.

Elon left his White House advisory role under Trump’s administration after their breakup and has seemingly moved his focus fully to building up xAI. While the company has attracted big valuation numbers, it still faces pressure from better-known rivals and a need for constant capital.

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