Elon Musk's AI startup reaches out to raise almost $6 bn

Musk's AI aim: Aiming to secure up to $6 billion in funding, xAI, the artificial intelligence startup owned by Elon Musk's is said to be holding industry deliberations. The Tesla and X chief is reaching out to global investors, including those in Hong Kong, to finance the company's challenge against Microsoft-backed OpenAI.

Sources privy to the matter revealed that Musk's AI startup has been engaging with wealthy individuals and investors worldwide in recent weeks. Talks have extended to family offices in Hong Kong, despite potential political complexities given the geopolitical tensions and export controls imposed by Washington.

Proposed valuation 

Musk aims to raise around $6 billion in fresh equity capital for xAI, targeting a proposed valuation of $20 billion. However, negotiations are still ongoing, and investor interest in such substantial amounts is being carefully assessed. The fundraising efforts have also reached out to sovereign wealth funds in the Middle East, with investors in Japan and South Korea reportedly approached. Morgan Stanley is said to be coordinating the fundraising, building on its previous involvement in Musk's leveraged buyout of X.

xAI, which launched its first product, the chatbot named Grok, in December, relies on training from social media posts on X for more up-to-date responses than competitors. The scale of the fundraising reflects the considerable costs involved in developing generative AI, requiring significant computing power, vast data, and cutting-edge chips.

Peers funding 

In comparison, OpenAI, a San Francisco-based rival, has secured around $13 billion from Microsoft alone. Other AI startups, such as Anthropic and Cohere, have also attracted substantial funding from major tech players and venture capital groups.

xAI filed documents with the US Securities and Exchange Commission in December, seeking $1 billion in funding, having raised $135 million towards that goal. Musk's company has not disclosed specific financing details, except for a November post on X stating that current shareholders would "own 25 percent" of the company.

Musk, a founding investor in OpenAI, launched xAI in July last year, expressing concerns about censorship and safety measures in rival AI products. The backing for xAI includes investors who contributed to Musk's $44 billion takeover of the company previously known as Twitter, including Oracle boss Larry Ellison, Sequoia Capital, Andreessen Horowitz, Fidelity Management, and Saudi prince Alwaleed bin Talal. Fidelity recently marked down its investment in xAI by about 70 percent, giving the company a valuation of approximately $12.5 billion.